The Narendra Modi government has pledged to employ all machinery at its disposal to deal with a second straight year of deficient monsoon and denied an impending distress in the vulnerable pockets of the country, but a dispassionate look at the ground situation would show there is a lot at stake.
Government officials and industry executives say if the India Meteorological Department’s (IMD’s) predictions of seasonal rainfall at just 88% of a long-period average (LPA) for 2015 is proved correct, a broad range of crops, including grains, oilseeds, cotton and sugarcane, would be hit. It would not just spoil chances of a higher farm-sector growth in 2015-16 from a paltry 0.2% expansion in 2014-15 (a deficient monsoon season as well) but also weigh on rural wage growth, which has already been languishing at below 6% since January from the average annual growth of 15% during the 2007-13 period.
What has reinforced the damaging impact of a deficient monsoon is the IMD’s prediction of the worst rainfall deficit of 15% for north-west and 10% for central India, which were worst affected by dry-spells even last year.
Although the north-western regions have relatively good irrigation system, the water tables in many of these areas, especially in Punjab, are already at low levels due to the last year’s drought and excessive production of water-guzzling crops like paddy for decades.
According to the latest data, water reserves across 91 reservoirs in the country were 92% of last year’s storage as of June 4, although it was still better than the benchmark 10-year average.
Prime Minister Narendra Modi’s biggest challenge would be how to ensure fair returns to farmers in case crops fail and yet contain retail inflation within a comfortable limit of, say, 6%. Giving a push to rural demand in the absence of adequate farm incomes and stir up economic growth would be the next major challenge.
The silver lining is that the farm sector witnessed a paltry 0.2% expansion last year, providing a favourable base for the calculation of national income in this sector for the current fiscal. Plus, global commodity prices, including those of edible oil, are still depressed and risks to imported inflation are limited, unlike in the last big drought year of 2009-10 when food inflation shot up to as high as 15.3%, partly due to elevated prices of imported pulses and cooking oils. The country meets roughly one-fifth of its pulses requirement and more than a half of edible oil needs through imports.
The impact of the loss of rice and cotton production, too, can be mitigated by offloading official stocks, and in case of sugar, the huge stocks lying with the private sector would prevent an irrational spike in prices.
However, government officials say the most damaging impact may be felt in three key crops: pulses, oilseeds and coarse cereals. Irrigation facility is available only in 16% of areas under pulses, 28% in coarse cereals and 18% in oilseeds across the country (See charts). Worse, states in the north-western and central regions–as bracketed by the IMD—are among the largest producers of these items.
The Reserve Bank Of India on Tuesday raised its CPI inflation forecast up by 20 bps to 6% for January 2016, significantly influenced by its higher forecast on food inflation.
Although sowing is at an early stage, areas under various summer crops are down by 5.4% until June 5 from a year before, even on a favourable base as last year, too, planting was initially affected by dryspells. Monsoon hit the Kerala coast only on June 6, a day later than this year.
Already a shortage of pulses has caused wholesale price inflation in this commodity to hit as high as 15.38% in April, a fourth straight month of double-digit inflation, when overall food inflation was just 5.73%. The country’s pulse imports rose to 4.5 million tonnes in 2014-15 from 3.4 million tonnes in the previous year.
Crisil Research has already revised its GDP growth forecast down by 50 basis points to 7.4% for 2015-16 from 7.9%, thanks to the forecast of below-par monsoon. On the demand side, Crisil expected consumption revival to be moderate, cushioned somewhat by lower inflation and interest-rate cuts.
However, an analysis of food prices during drought years since 1982-83 showed in some years–2002-03 when the NDA was in power and 2004-05–food inflation could be contained at 1.76% and 2.64%, respectively, with proper management of food stocks and paltry hikes in minimum support prices (MSPs) of crops. Experts have advised the govenrment to hike the MSPs for the current year only modestly, as has been recommended by the CACP, to keep a lid on inflation.
To soften the blow to farmers in drought-affected regions, agriculture minister Radha Mohan Singh said on Friday the government would offer subsidies on diesel, power and seeds. However, the diesel subsidy of Rs 10 per litre this year (If the government keeps it at last year level) and up to 50% subsidy on seeds may not be enough to bail out farmers, already stressed by a crash in commodity prices for more than a year now.
According to ICRIER chair professor (agriculture) Ashok Gulati, the country needs a “contingency plan with ample supply of seeds and real-time technology, an integrated advisory for less water-intensive crops, extended agri-credit at low rates, and an affordable and robust insurance policy, which can settle farmers’ claims quickly and transfer money directly to their accounts, dovetailing the Jan-Dhan Yojana, Aadhaar and mobile numbers.”
However, although a new crop insurance policy would be the most urgent need of the hour to protect farmers’ income, it is being scrutinised by experts now. By all likelihood, and as the agriculture minister has said, the policy would be out only by the end of this year. In such a case, it would be impossible to insure farmers against this year’s monsoon failure, unless the government doesn’t act very fast.
The minister said the government was considering improving domestic supplies of pulses through imports and asked states to place their demand of the commodity.
Sources said the government could explore options of implementing special scheme for the rejuvenation of perennial horticulture crops under the National Horticulture Mission and recommending the rescheduling of crops loans and providing interest subvention on rescheduled loans in drought affected areas. However, nothing has been finalised as yet.