Clouds darken over India

Updated: Apr 30 2006, 05:59am hrs
Indias ambitious economic growth target of 7.5-8% for the current fiscal year has come under the scanner with the Indian Meteorological Departments (IMD) prediction of a below average monsoon. The IMD has forecast 2006 rainfall at 93% of the long period average (LPA) for the country as a whole with a 22% probability of it being deficient.

The impact of a less-than-normal monsoon is likely to be minimal on the economy. The boom in the services sector, which contributes nearly 55% to the GDP, and strong manufacturing growth have reduced Indias dependency on agriculture. Farm output, in comparison, contributes to just a fifth of Indias economy, a share that has been shrinking progressively in the last decade. A slight shortfall in agricultural produce, economists argue, no longer hampers the growth to a vast extent. The minor 1% dip in the Bombay Stock Exchanges Sensitive Index after the IMD prediction exemplifies this view.

Now, heres the flip argument: monsoon months running from June to September, a period that accounts for fourth-fifths of the annual rainfall, is critical for main kharif or summer crops rice, oilseeds, coarse cereals, sugarcane and cotton that account for nearly 60% of annual agriculture production in the country. It is also critical for shoring up reserves at dams in south India and irrigation canals in the north, says Mahesh Vyas, managing director and CEO of analyst firm Centre of Monitoring of Indian Economy (CMIE).

Says Vyas: We are not changing our projections for agriculture and the economy based on the IMD prediction yet. But, it does put us on our guard. The prudence is warranted even though there isnt a consistent co-relation between the quantum of rainfall and agriculture production. When IMDs prediction for the 2005 monsoon season, for instance, was 98% of the LPA, the agricultural sector saw an overall spurt of 2.3%, a great relief from the previous years sluggish 0.7% growth. Two other instances when the monsoon predicted was 93% of the LPA had very divergent results: the kharif crop one year was negative and the other 10% more than the previous year.

Clarifies IMD director-general B Lall: This is just a preliminary forecast and its too early to draw conclusions. We are waiting for a few more parameters, based on which the final picture will come clear only towards end of June. This year, even if the kharif crop is adversely affected, experts reckon, the shortfall can be made up in the rabi or winter crop but thats a situation Indias nearly 700 million people or those who sell consumer goods to them who depend on agriculture and allied sectors would rather not face.

At the agriculture ministry, mandarins are not excessively alarmed yet and are awaiting temporal and geographical data instead. Says Dr S M Jharwal, principal adviser to the ministry of agriculture: This is an initial forecast and more than the quantity of the rain, the crop relies on the spread and timing of the rainfall. We have instances when the rainfall predictions were normal but it didnt help the crop. We received a total rainfall of 92% of the LPA in 2000 but due to its uneven spread, the farm production dipped by more than a tenth compared to the previous years growth.

Even the rabi crop, which does not rely much on the monsoons, could be affected in areas of drought because of a lack of moisture in the soil. However, while kharif is the worst affected, rabi is mostly taken care of by the winter rains caused by the western disturbances, which reasonably compensates for the shortfall of kharif, says Jhawar. Besides, the rabi crop is dominated by wheat, mostly grown in areas that are well-irrigated.

The agriculture ministry also has in place a mechanism to tackle monsoon-related crop problems. Our Weather Watch Group in consultation with the IMD and other expert bodies keep a tab on the weather and crop situation on a weekly basis, says Jhawar. Based on these observations, we issue guidelines to the respective states well in advance so that they may take the required actions in advance.

That system could get severely tested in the months ahead if procurement of grains slows down. Already there are reports from the market that traders are buying up and stocking grains in anticipation of a shortage this year. Thats a growing snowball India will want to get out of the way of: high grain prices will fuel inflation and interest rates, in turn, crimping consumer spending and industrial growth. As CMIEs Vyas says, Im waiting for the rains to arrive on June 1. As is rest of the country.