Inflation, poor rains to weigh on next government

NEW DELHI: Here’s a nightmare scenario for the next government, a drought that leads to India’s farm production getting hit, killing off prospects of an economic recovery from a prolonged slump. On top of that, inflation that threatens to confound expectations and accelerate amid fears that below normal rainfall will lead to supplies getting squeezed. The Reserve Bank of India is forced to raise rates as it seeks to keep prices in check, earning the wrath of the new PM.

How likely is all of this? On Tuesday, private forecaster Skymet said there was a 40% chance that rainfall in the June-September southwest monsoon would be less than average and a 25% chance that there would be a drought, thanks to El Nino, brewing halfway across the world.

Inflation data released the same day by the government brought further bad news.

Both wholesale and consumer inflation accelerated faster than expected in March because of pricier food articles. This came on top of Friday’s announcement that the Index of Industrial Production contracted 1.9% in February, dropping to a nine-month low and well below expectations.

Also that day, the government announced exports contracted for the second month running, declining 3.15% in March, while imports contracted at a slower 2.11%, which led to the trade deficit ballooning to a five-month high of $10.5 billion.