Agriculture minister Sharad Pawar said last week that El Nio conditions, which caused the worst drought in 37 years in 2009, were unlikely to return to the country with the same intensity in 2014 and damage crops, although the government was keeping a tight vigil. Monsoon is vital as more than 60% of the country's farmland is rain-fed, and it also boosts ground-water reserves for winter planting.
The Crisil report said there is a fair degree of uncertainty associated with these early forecasts and even the occurrence of an El Nio does not necessarily imply monsoon failure in India, but any irregularities in monsoon rains could prove costly in 2014-15. "In its fight against weak growth and high inflation, the last thing that Indias economy needs is monsoon failure, which could drive up food inflation as well as weaken GDP growth," it cautioned.
Global bodies such as the International Monetray Fund and the World Bank have forecast India's growth at 5.4% and over 6%, respectively, for 2014-15, while Crisil has pegged it at 6% and the National Council of Applied Economic Research has predicted 5.6% expansion. However, since these projections assumed the country would receive normal monsoon showers, any failure of monsoon would prove these calculations wrong, compounding worries for policymakers as they struggle to boost demand and help a manufacturing rebound.
Not just economic growth, even consumer price inflation, with almost 50% weight of agriculture-related commodities, would breach the 8% level in 2014-15, as forecast by Crisil recently, in case of deficient rains.
Moreover, widespread dry spells could also prevent the Reserve Bank of India (RBI) from easing its monetary policy significantly to spur growth, thanks to the renewed focus of the central bank on targeted inflation control. (The Urjit Patel panel has suggested a target of 8% CPI inflation by January 2015, 6% by January 2016, and a long-term goal of 4%, plus or minus 2%.)
Retail inflation slowed to a two-year low of 8.79% last month while wholesale price inflation slowed to an eight-month low of 5.05% in January, mainly on easing food prices.
Australias Bureau of Meteorology last month said that climate models surveyed by it showed Pacific Ocean temperatures approaching or crossing El Nios thresholds in the austral winter while a report in PNAS, the official journal of the US National Academy of Sciences, said there is a 75% chance that El Nios could occur in late 2014.
According to Crisil, El Nios occurs at irregular intervals of 2-7 years and weakens the Asian monsoon, often causing drought in north-west and central India and heavy rainfall in north-eastern India.