Business Today

Options Dry Up

Despite adequate warning, the government seems ill prepared for this year's drought.
twitter-logo Joe C Mathew        Print Edition: October 11, 2015
Options Dry Up
(Illustration: Ajay Thakuri)

As early as April, the Indian Meteorological Department (IMD) had forecast that the weather change phenomenon El Nino would impact this year's monsoon, just as it had done last year's. 2015, like 2014, would be rain deficient. The forecast has proved correct.

While not discounting the El Nino effect, the domestic private weather agency Skymet had challenged the prediction, claiming that while rains would be below normal, they would not recede to the extent the IMD maintained. It cited comparative statistics of a couple of earlier years to buttress its argument. But Skymet too subsequently revised its estimates and hedged its bets.

The distinguishing feature of this year's drought is the extent to which rainfall has varied across states. The IMD's data between June 1 and September 9 this year shows the rainfall has so far been 15 per cent below the long-period average (LPA) in the country, but in East and Northeast India, it has been almost normal. Indeed, there have been floods in parts of Assam. At the same time, large parts of Karnataka, Andhra Pradesh, Telangana and Maharashtra have been hit far more than the average indicates. About 40 per cent of all districts are affected across the country and experts believe the drought may impact at least 10 per cent of the country's agricultural production.

The government has responded by announcing an additional 50 days of man-work in the drought affected areas under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). But the current sense of dismay and surprise in official quarters does raise questions. Given the fair warning the IMD provided, did the central and state governments fail to get their act together? To meet the impending drought effectively, the Centre had brought all the departments relating to sectors that would be affected - agriculture, power, water resources, fertilisers, etc - together to draw up a common mitigation programme. Did the contingency plan fail to tackle the situation?

To minimise the impact of drought, some changes in crop selection should also be considered. Is extensive sugarcane cultivation, which is highly water consuming, a wise choice for a drought-prone state like Maharashtra? Prime Minister Narendra Modi launched a 'soil health card' scheme some months ago to check the degradation of soil from excessive use of fertiliser. There should be a similar effort to match crop with climatic conditions.

Apart from causing farmer distress and agricultural production loss, a drought also affects investor sentiment. As global rating agency Moody's observed in an investor note on August 11, India's vulnerability to drought poses sovereign credit challenges for the country. "The Indian economy's vulnerability to drought stems from the combination of five factors. These are the relatively high share of agriculture in overall employment; weak rural infrastructure and irrigation; inefficient food distribution; the large proportion of Indian household spending that goes towards food; and the share of food subsidy costs in the government's fiscal deficit," it said.

As a result, the note added, drought could lower gross domestic product (GDP) growth, raise inflation and add to fiscal pressures, to a greater extent than countries where these characteristics were absent. Inevitably, India's sovereign credit profile would thus be more susceptible to the drought's effects. Moody's pointed out that India's economic exposure to annual fluctuations in rainfall constrains the ability of its monetary policymakers to respond to ongoing macro-economic developments. This is particularly so in years such as the current one when a weak monsoon forecast coincides with an uncertain cyclical recovery.

The rating agency did take note of the drought management plans the government has been readying. "India's vulnerability to drought could decline over the longer term, as average incomes rise," it said. "But in the near to medium term, policies to improve infrastructure, food distribution, and non-agricultural employment opportunities, hold the key to reducing the annual economic uncertainty that is linked to the performance of the monsoon."

Moody's said that if government efforts were sustained and successful over the next two to three years, they could lower India's vulnerability to drought. They would also benefit India's overall sovereign credit profile, as they would lead to higher incomes, stable and lower inflation and a lower fiscal burden related to food subsidies.

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