A monsoon hit to the economy

A monsoon hit to the economy
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First Published: Thu, Jun 25 2009. 09 50 PM IST

Illustration: Abel Robinson / Mint
Illustration: Abel Robinson / Mint
Updated: Thu, Jun 25 2009. 09 50 PM IST
With every passing day, hopes of a normal monsoon are receding. Along with poor rainfall, hopes of better economic performance in 2009, too, may suffer a washout. Though Union minister for science, technology and earth sciences Prithvi Raj Chavan was careful not to sound the alarm bells in his briefing on Wednesday, the situation is one of concern.
The country as a whole is likely to receive only 93% of the long period average (LPA) of rainfall this season. By historical trends, the LPA is around 890mm of rain. By the yardstick of the India Meteorological Department (IMD), this is a below-normal monsoon. At the moment the concern centres on two regions: central and north-western India that have received poor rainfall. Central India, which normally receives 97.5mm of rain by this time, has only received 24.4mm of it, a gap of around 75%. North-western India has seen a gap of nearly 46%.
Illustration: Abel Robinson / Mint
This spells trouble for the country as a whole on two counts. First, a shortfall in the output of the kharif (autumn harvest) crop, especially sugar cane, rice and pulses, certainly spells trouble on the inflation management front. In this context, the Wholesale Price Index (WPI) touching –1.14% for the week ended 13 June cannot be taken as a positive sign. Within the WPI, the food articles inflation stood at 8.65%. Inflation for sugar and sugar products stood at a whopping 33.29%. This inflation is the result of events that occurred some six to eight months earlier. As a result, inflation, especially of sensitive commodities, has not been tamed. Poor rainfall will ensure that this problem continues. At the moment, however, there are sufficient stocks to ensure a smooth management of foodgrain supplies.
Second, there are serious fiscal implications in this situation. With the National Rural Employment Guarantee Scheme (NREGS) extended to the entire country, a bad monsoon will ensure that the number of people seeking jobs under NREGS will swell. Being an entitlement-based programme, the government has to give employment to anyone who demands it. Recently, it was announced that a further Rs9,000 crore would be spent under NREGS, taking the total expected spending under it in fiscal 2009 to Rs39,000 crore. But that was an estimate made sometime in early 2009. With poor weather conditions, there is no knowing where the NREGS spend might go. In an article in the 20 June issue of the Economic and Political Weekly, economist M. Govinda Rao called the fiscal situation “worrisome”, and argued that a substantial portion of the fiscal deficit was due to budgeting of expenditures for farm loan waivers and additional expenditure under NREGS, among other items. This situation now has the potential to get out of hand.
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First Published: Thu, Jun 25 2009. 09 50 PM IST
More Topics: Ourviews | Monsoon | Economy | India | Earth sciences |