BackWill it be an El Niño or La Niña monsoon?
A normal monsoon should be the economic windfall the NDA will be seeking this year
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An implicit bet in Arun Jaitley’s third budget presented in Parliament last week is that the country is expecting a normal monsoon this year. After two devastating back-to-back droughts, it is only natural for public policy personnel to wish for a change in fortunes—especially given that this cycle of two-year droughts has a precedent of occurring only once in three decades.
However, nature at the moment is keeping everyone guessing. The big debate in global meteorological circles is whether the ongoing El Niño (the worst since 1997-98, causing the truant monsoon), is abating. More importantly, the big bet now is on whether it will morph into the opposite phenomenon, La Niña.
These two Spanish-origin terms actually hold the key to the well-being of the Indian economy this year. They are associated with weather phenomenon arising due to temperatures departing from the normal in the Pacific Ocean—this influences global precipitation trends, including the annual monsoon we so eagerly await in India. The El Niño is triggered when temperatures in the Pacific are hotter than normal, and correspondingly the La Niña when the temperatures cool abnormally. One causes a drying up of the monsoon and the other makes it bountiful.
The latest prediction, issued last week by the National Oceanic and Atmospheric Administration, which is part of the US department of commerce and a premier agency monitoring global weather conditions, says that the El Niño conditions, though abating, still persist in the Pacific Ocean. It projects that temperatures in the Pacific Ocean should return to normal over the next few months, and that they may eventually “transition to La Niña conditions during the Fall (September)".
The good news is that the forecast does seem to suggest that the likelihood of a third consecutive drought is diminishing. Now, whether the monsoon will swing to the other extreme is a little iffy; presumably greater clarity will emerge over the next few months.
A normal monsoon should be the economic windfall the National Democratic Alliance will be seeking this year. Last year, it gained so much on the upside by riding the wave of a collapse in international commodity prices—especially prices of oil (it helped the finance minister manage his fiscal math despite the fact that slowdown in growth severely squeezed his normal revenue streams). It was actually one of the key reasons enabling the control of inflation.
Food inflation, though, is still a matter of concern and the monsoon is critical to containing it. Especially given that India gets 70% of its annual rainfall in the monsoon, irrigating half the country’s farmlands.
Last year, India experienced its worst monsoon in six years with a 14% rain deficit. Consequently, at the end of the season, 39% of the country’s area received deficient rainfall, 55% received normal rainfall and 6% received excess rainfall.
In fact, this year’s Economic Survey, which preceded the presentation of the Union budget, addressed its concerns about the monsoon rather candidly: “If the monsoon returns to normal, food prices will ease, especially since the government remains committed to disciplined increases in MSPs (minimum support prices) for cereals, and rural wage growth remains muted."
Actually, the central thrust of Jaitley’s budget was to help alleviate rural distress and structurally reset the farm sector—precisely why at Mint, we dubbed it as a budget for Bharat. This was preceded by the launch of a revamped crop insurance scheme, which seeks to mitigate growing risks in Indian farming as farmers diversify into commercial crops.
Understandable. At present, 49% of India’s workforce depends on agriculture for a livelihood and 68% of its population resides in rural areas. Apart from this, they have over the past decade, especially with consumption patterns in rural and urban areas converging, emerged as the bulwark of the consumer economy.
The spread of rural distress, besides stirring political unrest, has also begun to reflect in corporate balance sheets as consumer goods companies have witnessed shrinking sales. India’s Fractured Farms, published by Mint last year, captured the structural factors underlying rural distress.
It is then clear that this year’s monsoon is particularly relevant to India’s economic fortunes. For the moment, all eyes are on the Pacific Ocean, where the Indian monsoon originates.
Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics.
Comments are welcome at capitalcalculus@livemint.com
His Twitter handle is @capitalcalculus
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