In India, farm fortunes remain tied to rains
After declining in the 1990s, correlation between farm growth and rains went up in the past decade
Five years after a bad drought, the threat of poor rains once again looms large over the Indian economy, raising fears of lower growth and high inflation. The fears are not entirely unwarranted, data shows. While the impact of the 2009 drought was less severe than the one preceding it in 2002, on average, Indian farms seem to have become more dependent on rains than in the past.
A Mint analysis shows that the correlation between changes in farm output and changes in rainfall has grown sharply in the past decade after falling in the 1990s. The correlation coefficient (a measure of correlation, with 1 indicating perfect correlation and zero indicating absence of correlation) between farm growth and rainfall deviation fell from 0.87 in the 1980s to 0.34 in the 1990s before rising again in the 2000s to 0.76.
The drought in 1987, when rainfall was 19% below normal, lowered farm output by 1.7%. A similar drought in 2002 reduced agricultural output by 8%. In 2009, when rainfall was 21% below normal, the farm sector saw positive growth of 0.4%.
Agricultural experts say it is too early to say that Indian agriculture has become resilient to droughts based on the 2009 experience. There has been no clear pattern in the way rains have impacted agriculture over the past decade, said agricultural economist and former chairman of the Commission for Agricultural Costs and Prices (CACP), Ashok Gulati.
A May 2014 report by Abheek Barua of HDFC Bank Ltd based on an analysis of 12 drought years since 1960 showed that agricultural growth declined by 2.6% on average, and inflation grew by a similar amount during a drought year, as the accompanying chart shows.
Given that roughly half of the country’s farms are rain-fed, the farm sector’s ability to withstand poor rains is limited. Analysts believe farmers can mitigate losses to some extent by shifting to short duration crop varieties or by running down existing stocks, but growers of crops such as rice, soybean, cotton and corn will be hit hard. The precise impact will depend on the rainfall distribution across the country in the coming months.
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