BackEl Nino conditions may drive up food inflation, weaken GDP growth
Economy may expand 5.2% in the year starting 1 April and inflation may touch double digits, says Crisil Research
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Mumbai: India’s economy may expand 5.2% in the year starting 1 April and inflation may touch double digits if there is a monsoon failure as a result of the drought-causing El Niño weather conditions, Crisil Research said on Tuesday.
El Nino condition usually causes drought in north-west and central India and heavy rainfall or floods in the north-eastern regions, said Crisil Research, an arm of rating agency Crisil Ltd. North-west and central India together contribute 67% of the country’s agriculture output while the north-east and east regions together contribute around 13%, according to Crisil.
“In its fight against weak growth and high inflation, the last thing that India’s economy needs is monsoon failure, which could drive up food inflation as well as weaken GDP growth," said Crisil Research in its recent note.
El Nino occurs when Ocean and wind currents across the globe are affected by warming up of equatorial pacific waters. The Southern Oscillation is the atmospheric component of El Nino. Since 2000, there have been four El Nino years—2002, 2004, 2006, 2009 of which 2002, 2004, 2009 are associated with deficient monsoons.
Crisil Research also suggests that a weaker monsoon could lead to lower agriculture output and sharper hikes in minimum support prices (MSPs) and higher food inflation. In January, retail inflation for food was at 9.9%. The Reserve Bank of India (RBI) aims to bring down consumer price inflation to 8% by January 2015.
The Indian economy grew at 4.6% in the first half (April-September) of the fiscal and needs to grow at 5.2% in the second half (October-March) to meet the 4.9% average growth full-year forecast made by the government’s statistics department. In the year ended 31 March 2013, the economy grew 4.5%, the slowest pace in a decade.
The International Monetary Fund (IMF) and the World Bank have projected economic growth to pick up to 5.4% and 6.2%, respectively, for 2014-15.
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