The India Meteorological Department (IMD) forecasts below normal monsoon for the year. IMD projects that there is a 60% probability of El Nino this year. A strong El Nino can cause drought-like conditions which can dampen the agriculture output in India. It is important to note here that while the share of agriculture has come down in GDP, it still is a key driver in the rural areas where 60% of India's population resides.
This certainly is negative as - if monsoons are below average, the economy will face inflationary pressures and growth will suffer. In such a situation, even the monetary policies will not be able to do much in terms of reversing the trend.
Having said that, one should also note that the historical data has shown mixed results when India has faced draught situation. During the El Nino years viz; 2004, 2006 and 2009; growth in the agricultural GDP has either remained flat or has shown positive trend. This is in contrast with the El Nino years, 1997 and 2002, where this growth was negative.
We are not sure how the year 2014 and the years there after are going to pan out for rains. But from a longer term perspective, the government needs to put in efforts to reduce the dependence on monsoon for bolstering agricultural production. Ramp up in irrigation techniques, water harvesting, and importantly storage facilities are some of the primary issues to look into. The latter point becomes important because adequate storage of foodgrains during bumper years can be used in years plagued by inadequate rainfall. This helps to keep prices of foodgrains in check to a certain extent.
All eyes are now on the new government and the efforts that it makes to tackle the challenge that El Nino is likely to pose this year. But from a longer term perspective, it will be interesting to see whether it will address some of the structural issues in agriculture so that the overall dependence on monsoons is reduced.
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