The Finance Minister has now officially scaled down GDP growth figure to 6% in 2009-10. This is in line with what independent forecasters have said, lowering projections to between 5.5% and 6% consequent to drought. The loss isn?t that much, as would be expected since the contribution of rain-fed agriculture to GDP isn?t that much. What about the drought itself? Some qualifications are in order, because a lot of scare-mongering is going on. First, it is still a hydrological rather than economic drought, since impact on kharif sowings won?t be known until September. Second, more than overall deficiency of rainfall by 25%, what is pertinent is its spatial and geographic distribution. For instance, Crisil?s DRIP (deficient rainfall impact indicator) shows that drought is not as severe as in 2002 and is concentrated mostly in UP, MP, Maharashtra, AP, Bihar and West Bengal. Without in any way downplaying the importance of resultant human tragedy in these states, traditional irrigated Green Revolution areas are insulated. Therefore, both in terms of production impact and indirect loop of reduced farm prosperity curbing demand for manufactured goods, reduction in GDP growth is unlikely to be severe. As we said, 0.5 percentage point sounds about right. Third, rabi production often tends to compensate. Fourth, while forecasts are always uncertain, questions should be raised about IMD?s capacity to predict, notwithstanding a newer model and investment in supercomputers.
Drought relief? Reports about drop in cultivation are collected at sub-district levels and wind their way up to central ministries. This is a colonial method that ensures a big time lag between distress and action. Why do we still follow this? There are sufficient foodgrain stocks, but PDS distribution isn?t efficient. And these stocks don?t cover pulses and coarse foodgrains, both rain-fed crops. Delivery of right to food legislation is uncertain and so are contours of the revamped NREG. While the original NREG reduced migration from villages, drought is likely to lead to renewed migration pressures. With recent scams on exports and imports and government controls on both, trade policy isn?t a flexible instrument for handling shortages. No doubt, there will be demands for hikes in minimum support (read: procurement) prices, benefitting large farmers and millers in richer agro-climatic zones and contributing to further increase in food subsidies. This won?t help drought-hit farmers or tax paying public. Farming needs big reform to reduce its vulnerability. But bet on big reform not happening.
