The Indian meteorology department says there is a 33% chance of a bad monsoon this year. That has immediately led to headlines predicting dire food inflation, human misery, and stalled economic growth.
Not so fast. Here are five reasons that a poor monsoon resulting from the El Niño phenomena might not be such bad news after all.
First, take crop production. India plants paddy, corn, sugarcane, oilseeds, pulses, fruits, vegetables, and cotton in summer. The geographical and temporal distribution of rainfall is as important as its total amount. In the northern states of Punjab and Haryana, ample irrigation will take away the pain from deficit rainfall. In fertile Bihar, ground water is plentiful. The central Indian states of Maharashtra and Madhya Pradesh grow hardy crops such as lentils, pulses, cotton, and soy. Even a smattering of rain when these crops enter the growing phase can ensure a decent harvest. Water reservoirs are full with winter rain. Gujarat has a well-developed network of canals and micro-irrigation designed for “more crop per drop.” And in southern India, the monsoon is expected to be normal. So a steep overall fall in crop production is unlikely.
Two, food prices are unlikely to soar across the board. The government has more than enough wheat and rice stocked to meet any shortfall in grains. There has been a good harvest of mustard seed–our most important oilseed—in March, along with chick peas, the largest pulse crop based on volume. Unsold sugar supply from last year and imports will smoothen any blips in the October harvest. And the domestic supply of palm oil and lentils is anyway buttressed by free trade. This year will be no different. Price signals from futures trading as well as hedging on the exchange will allow all stakeholders to correctly foresee and manage risk from price volatility.
The main culprits behind food inflation anyway are perishables like fruits and vegetables, milk and eggs. Their prices have been spiraling despite the good monsoon last year. This shows that other factors such as supply chain inefficiency and market access are just as critical.
Thirdly, rural distress may be milder than expected. Over the last one year, crop prices have been bearish due to bumper harvests. This has hit returns on investment. Even the slightest improvement in price sentiment will bring cheer to farming families.
Livestock is another life line. Most farms rear milch cattle or chickens to bolster crop income. As long as animal feed is available, farmers will get good returns from rising demand for dairy and poultry. So, farming will continue to bring income. Crop insurance will be handy in case the rain deficit is high. Social safety nets such as the National Rural Employment Guarantee Act (an income-support program launched in 2005) and the National Food Security Mission will ensure no one sleeps hungry.
Most importantly, the number of people dependent on agriculture will reduce once growth in sectors such as manufacturing, construction, and infrastructure picks up in response to new government policies. This shift will certainly ease the pressure on rural incomes. Between 2005 and 2012, when the non-agricultural economy grew at an average 9.4% a year, new jobs pulled out 37 million workers from the fields. The effect on agriculture is instant.
The fourth reason is that rainfall is just one factor behind the rise in India’s agricultural GDP. Farm GDP is bolstered by public and private investment in agricultural infrastructure and mechanization. It also grows with crop prices. Even in the drought year of 2009, farm sector growth was 0.8%. Investment in agriculture can continue to significantly improve its growth prospects.
Last but not the least, the farm sector contributes about 14% of India’s nearly $2 trillion economy, Asia’s third biggest. So, even if agriculture does dip, the slack can be picked by heightened activity in services and manufacturing sectors. On the revenue side, the performance of agriculture will have only an indirect impact on public finances, as agricultural income is exempt from tax.
Truth is, deficit rains need not bring the Indian economy down to its knees. 2013-14 was the best year yet for rains since 1995. But it did not lead to accelerated growth in GDP or to a decline in food prices. The reverse should also be true.
What matters ultimately is the right policy. As long as the government has an adequate Plan B for rain-fed agriculture, keeps an eye on food supply, spreads the social security net wide, and zealously boosts investment in other sectors of the economy, the poor monsoon will be just a blip on an otherwise great year for India. Droughts and rising prices have lost their power to scare us. We know we can handle them.
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