El Nino may push down GDP to 5%, increase inflation to 8.5%

Written by Press Trust of India | Mumbai | Updated: Apr 12 2014, 09:21am hrs
Singaporean brokerage DBS on Friday said the inflation in India may jump to over 8.5% and GDP growth may slip to 5% in the current fiscal if the much-feared El Nino threat plays out this year.

The El Nino entails unusually warm temperatures which disrupt rainfalls, while in the domestic context, it has been observed that the incident has coincided with weak South-west monsoons.

Even the Reserve Bank of India (RBI) had flagged this issue at its recent policy announcement, saying El Nino can have some impact on inflation.

El-Nino could push CPI (Consumer Price Index) inflation off the RBI's glide path and up to 8% by January 15.

Even a moderate 5% increase in food index could lift headline inflation to 8.5%," the DBS noted said.

The brokerage added that this may lower the scope for RBI to being more accommodative in its policy stance.

Vegetable prices have entered their seasonal trough and further softening is unlikely... There are risks to the central forecast of 8% CPI inflation by January 2015 stemming from a less-than-normal monsoon due to possible El Nino effects, the RBI had said on April 1.

On the growth front, DBS said a possible playing out of the El Nino factor may also impact agricultural growth, which can pull down the overall GDP growth as the strength in the industrial and service sectors has waned over the past two years.