New Delhi: Meagre monsoon rains have pushed India to the brink of drought, putting pressure on food prices and energy supplies and imperilling growth, but wheat and rice stocks will provide a buffer, officials said on Tuesday.
India’s monsoon rains have been 29% below normal since the beginning of the June-September season, hurting crops such as rice and cane and triggering a sharp rise in food prices in India and sugar futures abroad.
The monsoon is vital for India’s summer-sown crops because most farmers do not have access to irrigation facilities.
“We are staring at the prospect of an impending drought,” Prime Minister Manmohan Singh told a meeting of environment ministers of Indian states.
Edit | The drought and beyond
Rains have returned in the past few days, particularly in cane-producing Uttar Pradesh, where the local government has declared a drought in most districts. But this has not eased the concerns of top national officials, who only in recent days began to characterise the countrywide situation as a drought.
The western state of Gujarat imposed limits on the quantity of pulses and sugar that traders can hold, a state government official told Reuters on Tuesday, part of a nationwide crackdown on hoarding in the hope of checking price rises.
A Reserve Bank of India (RBI) deputy governor said erratic monsoon rains may put pressure on prices, but the Planning Commission deputy chairman Montek Singh Ahluwalia said India had enough food stocks to counter inflationary pressures.
Trade secretary Rahul Khullar said the government was not considering a ban on exports of corn and soymeal.
Union finance minister Pranab Mukherjee said on Tuesday he expected growth in 2009-10 to be over 6%, as forecast earlier and in line with a central bank estimate, despite the monsoon shortfall.
Still, India’s main share index gained 1.7% on Tuesday after dropping more the 4% a day earlier.
Some private economists have said poor rains could trim economic growth by as much as two percentage points in the fiscal year ending March. Some investors are growing nervous that a poor harvest could crimp rural spending and erode profit growth for consumer goods sellers.
Citigroup on Tuesday scaled back its estimate for Indian growth in 2009-10 to 5.8%, down from 6.8%, because of a downturn in the farm sector.
Higher food prices were likely to raise India’s inflation rate to 6% at the end of the fiscal year, above an earlier four percent forecast, Citigroup analysts Rohini Malkani and Anushka Shah said in a new report.
Farming accounts for 17% of the Indian economy but rural consumption makes up more than half of domestic demand.
India’s growth slowed to 6.7% in its most recent fiscal year after three straight years of growth of at least 9%.
Low rainfall has slowed the refilling of India’s main reservoirs, threatening the supply of hydro-electric power which accounts for a quarter of India’s generation and reducing availability of water to irrigate winter-sown crops such as wheat and rapeseed.
Hydropower generation in India had fallen 10% from last year, Central Electricity Authority chairman Rakesh Nath told reporters.
The weather office has forecast widespread rains in the key cane-growing areas in north and northwest India as well as the central state of Madhya Pradesh, the main soybean-growing region.
Union agriculture minister Sharad Pawar said on Monday that India needed to increase the planting of winter-sown crops and improve irrigation to make up for the damage to farms.