Maharashtra's drought situation is now thought to be worse than the 1972 drought. No crops came to harvest and no food grain was produced around 40 years back in the state. Around 25 million people in the state required help in that situation. However, one special feature then was that there was no great shortage of drinking water. But, now in 2013, the water from irrigation projects was even being used for drinking purposes on account of severe drought.
Farmers in Maharashtra and other drought affected states such as Karnataka, Rajasthan, Haryana and Gujarat have been praying for rain. But, the rain gods don't seem to be listening. And this miserable situation isn't just affecting the farmers but also consumption driven companies. Farmers and other low-income labourers are finding it difficult to make ends meet amidst the drought. Buying two-wheelers and TVs are far from their radar. This consumption class is a major source of income for FMCG and consumer durables companies. This slowdown in consumption is being reflected in the indices performance this year. The consumer durables and FMCG indices are also showing signs of fatigue in 2013. After rising almost by 50% in 2012, the indices are down 9.6% and 1% respectively so far in 2013. In comparison, the benchmark BSE-Sensex rose 26% in 2012. This year, the index has been pretty much flat so far.
In August 2012, the government announced a relief package of Rs 20 bn as well as a 50% diesel subsidy to be shared equally between the centre and the five states. But, leakage and corruption may ensure that very little of this money actually goes into the pockets of those that need it. In 2008, a farm-loan waiver of Rs 520 bn was announced by the United Progressive Alliance (UPA), and this was key to them winning the elections. But, a recent Comptroller and Auditor General (CAG) report pointed out that hundreds of ineligible farmers cornered a sizeable amount of this waiver scheme. The various irregularities included disbursal of benefits to in-eligible farmers, claiming additional charges from the government and waiver of loans in violation of rules. So, a bail-out isn't really a solution.
While for FY13, the downside risk is limited to the stock markets, next year it may be a different story. If the drought situation continues, further monetary easing by the Reserve Bank of India (RBI) in FY14 may be out of the question as prices of food grains and vegetables may shoot up, leading to inflation rearing its ugly head once again. The stock market did not have any major impact when there was severe drought in 2009. But now, with India facing a twin deficit and slowing growth, a drought may affect the sentiments in the country more. Preliminary forecasts for this year suggest India will have normal rains, which is crucial for rice, wheat and cotton. But, only time will tell what the rain gods will have in store for India.