Indian markets are abuzz with election mania and the likely positive outcome. However this party might not last longer. That's because agricultural output is seemingly in danger. And this could have a bearing on inflation all over again. Thanks to the recent hailstorms and the drought-like situation emerging on account of El Nino phenomenon.
The Australian Bureau of Meteorology said there was now a more than 70% chance that the unusual weather pattern will develop in the next few months. An El Nino increases the chances of poor monsoon in India although there have been several exceptions in the past.
We believe that predictions made by the weather department should be taken with a pinch of salt. What matters is what the government has been doing to reduce the dependence on monsoons for bolstering agricultural production. Has it been making sufficient investments in ramping up irrigation techniques, water harvesting etc? Are there enough storage facilities for food grains? The latter point becomes important because adequate storage of food grains during bumper years can be used in years plagued by inadequate rainfall. This helps to keep prices of food grains in check to a certain extent.
It seems that the answer to all these questions is no. The storage facilities for food grains in India are very poor. According to an article in Mint, around 40% of government's food grain is stored in an unprofessional way due to acute shortage of storage capacity to the tune of 35 m tonnes. Due to inadequate storage capacity and inefficient logistics, around 20-30% of total food grain harvest is wasted.
The Reserve Bank of India, in its latest credit policy has also warned that El Nino will have an impact on inflation due to rise in prices of agricultural commodities in case of monsoon failure. Thus India needs to have systems in place to tackle the problem of inflation caused by El Nino.