The Naught Little Boy “El Nino”

Updated: May 3, 2014 12:44 pm

The ‘little boy’ may throw a spanner in the plans of Narendra Modi’s government which all poll projections say is sure to happen. No, this little boy is not Rahul Gandhi but a phenomenon called ‘El Nino’ which causes an unusual warming of sea surface waters in eastern and central equatorial Pacific that impact weather in many parts of the world. It shakes up global rainfall and storm activity, causing droughts and floods in different parts of the world. It generally has an adverse effect on the Indian monsoon. Given the fears of an imminent drought; the next government has a tall task ahead of it. It will definitely pose a potential challenge for a new government which will take office in May.

Monsoon brings showers and cheers to India. If it fails, it is a disaster both for people and economy. Latest updates by two international weather bureaus have given India some reason to dread monsoon forecasts which would begin next month. India faced the ire of El Nino earlier, it caused the droughts in 2002, 2004 and the driest monsoon in four decades in 2009, which inflated food prices sharply and caused inflation that prompted the RBI bank to tighten monetary policy and encouraged a clampdown on farm exports despite bulging stocks. The monsoon has always been a sensitive issue for India, where a huge percentage of farmers and the country’s economic interests depend on the rainy season as irrigation facilities are inadequate. The Indian Meteorological Department is pooh-poohing these forecasts and accusing the west of conspiring to rattle the country’s commodities and stock markets. IMD defines a drought year as one in which the overall rainfall deficiency is more than 10 per cent of the long period average and if more than 20 per cent of the agricultural area is affected.

Private weather forecaster Skymet has predicted a sub-normal monsoon in India, courtesy El Nino. According to them, there is a 40% chance that rainfall in June-September would be less than average, a 25% chance of a drought and zero percent chance of excess rains. Statistically, India has faced drought every 4.4 years. All El Nino years were not necessarily drought years, though the opposite is true. Since last drought in India was in 2009, this year can be a drought year.

There is a consensus among the experts that if the next government manages to keep the lid on fiscal deficit, and if RBI governor Raghuram Rajan keeps his promise on rates, India may avert El-Nino devastations. However, credit rating agency Crisil has hinted that it might have to scale down the economic growth projection for 2014-15 to 5.2 per cent from six per cent in the event of El Nino-driven poor monsoon. Besides, consumer price index-based inflation, with nearly 50 per cent weight on agriculture-related articles, will rise above its current forecast of eight per cent in 2014-15.

In its fight against weak growth and intolerably high inflation, the last thing India’s economy needs is a monsoon failure. The economy grew 4.5 per cent in 2012-13 and is officially projected to expand 4.9 per cent this financial year. However, it grew only 4.6 per cent in the first nine months, raising doubts over the official projections for entire 2013-14.

If the economy does not grow by six per cent in FY15, it would have repercussions on a whole lot of things, including the tax targets set in the interim Budget, which assumed this much of growth, and inflation at 7.3 per cent, to give a nominal gross domestic product (GDP) growth of 13.4 per cent. Nominal GDP growth could still be the same but a slowing in real GDP could affect tax collections.

Other risks to inflation are uncertainty on minimum support prices for agricultural commodities and other administered prices, especially of fuel, fertilizer and electricity, the outlook for fiscal policy, geo-political developments and their impact on global commodity prices. Effect of deficient rainfall is already evident in India in the power sector. There is decreased power production thanks to empty dams and rivers; thermal power stations too need water to produce steam, and they too are affected.

It could trigger lower production of summer crops such as rice, sugarcane and oilseeds. India is the world’s No.2 producer of rice and wheat. The 2009, El Nino drought had pushed global sugar prices to their highest in around 30 years. The current high buffer stocks of food grains will give the new government a lot of room to reduce inflation. Thankfully we have enough food reserves to meet emergency requirements. Last year India produced a record 252 million tonnes of food grains. The RBI Governor, Raghuram Rajan, is still uncertain over the actual impact of El Nino on the June-September monsoon and on the agricultural output. According to Development Bank of Singapore, inflation may jump to over 8.5 per cent and GDP growth may slip to 5 per cent in the current fiscal. However, the occurrence of El Nino does not necessarily imply monsoon failure in India. Since 1991, of the seven times an El Niño was experienced, only two of the years synchronised with a monsoon failure or a drought situation in the country. The Modi wave may blow the effects away.