El Nino does not necessarily mean bad farm sector growth

NEW DELHI: Though India is highly dependent on rain-fed agriculture it may be able to shrug off an occasional bad monsoon, as could be the case in the current year.

The Indian Meteorological Department (IMD) forecast a below average monsoon in 2014-15 because of El Nino, a warming of surface waters of Pacific Ocean along South America, impacting rains in the second half of the June-September monsoon season.

Many experts fear this could impact the expected economic recovery and stoke inflation, but data suggest that there is no direct correlation as timely government intervention and better information has made farming more rain-proof.

In the worst monsoon in recent years, in 2009, when rainfall was 23% below normal, foodgrain production fell only about 7%, and that too largely of rice. Wheat production was same as the year before and sugarcane output was higher. In 2009-10, the average wholesale inflation was only 3.6% and in the next year, when rainfall was 2% above normal, inflation was 8.6%.

"Agriculture's dependence on summer monsoon has reduced considerably over the years, with kharif (summer) and rabi (winter) crops now contributing equally to overall food production growth," according to a statement by Deutsche Bank's India economist Kaushik Das.

Share of kharif in total foodgrain production is down from 63% in 1970-71 to about 50% now. This is largely to do with expansion in irrigation facilities - almost 90% of wheat cultivation is now covered by irrigation as opposed to just over 50% in 1970-71.

Agriculture's contribution to the GDP has fallen as well, down from 16% in 2004-05 to 11.8% in 2012-13. However, rainfall has a far more impact on sentiment because nearly 50% of the country's population depends on agriculture for a livelihood. Deficient rainfall still has a disproportionately large impact and given the propensity of vegetables prices to flare up at the slightest of excuse, it could impact inflation as well.

Ramesh Chand, professor and director at the National Centre for Agricultural Economics and Policy Research, said the actual impact depends on distribution of the rainfall and not the overall average.

"If rainfall actually turns out to be deficient his year, then agriculture growth may fall to 2-3% as the base was high last year," he said.

Agriculture and allied sector is forecast to grow 4.6% in 2013-14.

Madan Sabnavis, chief economist, CARE Ratings, is more circumspect. "A deficient monsoon will impact GDP, and in the worst-case scenario overall GDP growth could be a sub-5% for the third straight year," he said.

According to most of the forecasts, economy may recover to 5.5-6% in 2014-15 from 4.9% expected in last fiscal.

Economists are divided over the impact of a poor monsoon on food inflation as well. "A monsoon disrupted by El Nino could fuel food inflation," Asian Development Bank said in its latest outlook report, which cut growth forecast for 2014-15 to 5.5% from 5.7%.

Soumya Kanti Ghosh, chief economist adviser, SBI, said a deficient rainfall could add "another 45 basis points to CPI from current levels, all other things remaining unchanged."