Will Monsoons spook Economic Growth away?

The biggest driver of Indian Economy numbers through the downturn was a bouyant domestic demand. This helped it tide over the economic doom better than most of the countries around the world. However, the spectre of a bad monsoon actually is more insidious to the Indian economy than anything else. And this is one threat the Indian economy is somewhat less prepared to coast over.

The crisis
World Meterological organization warns of greater than average chance of El Nino thus having profound impact on the Indian Monsoons. As it stands, the Indian Monsoon has barely progressed in the last two weeks (2nd/3rd week June).The annual June-September monsoon generates nearly 80% of the annual rainfall over the country and is vital for the economy, being the main source of water for agriculture, which accounts for around 17% of India’s gross domestic product (GDP). Other than the 60% of the country’s workforce that depends on agriculture, the rains are also important for traders dealing in food and cash crops.As of 17th June, the latest estimate shows a 45% shortfall in rainfall.28 out of 36 meterological sub divisions have recorded scanty rainfall as against 4 divisions last year. Read Could El Nino dry up the economy's green shoots? http://www.livemint.com/2009/06/08003141/Could-El-Nino-dry-up-the-econo.html?d=1

The Reason
A full fledged El Nino was only expected around August, commented Mr. Madhavan Rajeevan, meteorologist at ISRO.The only ray of hope is the fact that not all El Ninos are bad: 1997 El Nino led to excess rainfall. 2002 and 2004 El Ninos associated with severe droughts. However statistics favours El Ninos association with droughts: Between 1880 and 2006, 12 out of 18 El Ninos have corresponded with drought like conditions/below normal rainfall.

The Impact
Drought is the most eminent risk of the El Nino fall out with Khariff crops being at risk.Technically speaking a Rainfall deficiency of 10% or more is defined as a drought. Since, 55-60% of the Khariff crop is dependent on Monsoon, a small variation in the rainfall totals can impact the crop very adversely, There has been a drastic dip in water reservoir levels across several states. In nearly 80 national reservoirs, the water stored is 1/3rd less compared with the same time last year.and if not replenished during monsoons, irrigation water will be deficient, because drinking water needs would come first.

Long Term Damage and Control
The current year’s monsoon is considered to be crucial for the economy as buoyant rural consumption has been a key driver of growth amid an economic downturn (read http://www.livemint.com/2009/04/17234039/Monsoon-booster-for-rural-dema.html?d=1). While the country has sufficient food stocks to tide over any crisis this year, the macro economic pressure is expected to accrue on account of food price inflation.

In Orissa, Industries have been asked to cut down their production levels, because of low reservoir levels resulting in low electricity generation. Power deficit levels are expected to be 20 – 30%, even in a power surplus state like Orissa. Elsewhere in Chattisgarh, the Government has already purchased and stored 370,000 tonnes of rice and is ready to procure rice from outside as well. Madhya Pradesh is worst off in terms of reservoir crisis. Reservoirs which were full last year, are all running empty.

A shortfall in rainfall could also impact the power generation in the country. Agricultural demand for power would go up and power availability from hydroelectric projects would come down. This would impact the power supply position in the country.

Source: Truant rains could nix nascent recovery: http://www.livemint.com/2009/06/22235043/Truant-rains-could-nix-nascent.html?pg=1

Also Read: Changing Monsoon trends: http://www.livemint.com/2009/04/30222403/Changing-monsoon-trend-forces.html?d=1

http://www.livemint.com/2009/05/25092131/Monsoon-hits-Indian-coast-ear.html?d=1