As usual there is speculation about the normalcy of the monsoons. A deficient monsoon this year will certainly aggravate the stress of farmers who suffered losses due to the unseasonal rains in the last winter season. It will also dent the high growth profile that India is currently enjoying. Such a situation will test Modi's ability to manage crisis.
As usual there is speculation about the normalcy of the monsoons. The government has declared that this year monsoon will be at 88 per cent of the long term average. A deficient monsoon this year will certainly aggravate the stress of farmers who suffered losses due to the unseasonal rains in the last winter season. In some cases, the rain and hail resulted in completely ruining the rabi crop leading to a spate of suicides.
Poor monsoons will also dent the high growth profile that India is currently enjoying. India's growth forecast has already been revised downwards from 7.5 to 7.3 per cent by Indian credit rating agency CRISIL.
Still we are patting ourselves on the back that we are ahead of China. We must remember that China has had double digit growth for nearly 30 years and now it is time for the economy to cool down— a policy deliberately promoted and designed by the Chinese government. China's per capita income at $8,211 is way above India's per capita of $1499 and with GDP at $10.36 trillion, China is far ahead of India's $1.8 trillion in terms of total income of the country. Even so, the prospect of India having a higher rate of growth than China is generating a 'feel good' factor and the world is taking notice of India's fast growth.
The reason for optimism about India's future in the next one year is based on the fact that manufacturing growth has picked up to 8.4 in the fourth quarter (January to March 2015) which is good news for job prospects of the youth. But core sector (steel power, mining, coal, fertilizers, cement, gas) growth has shrunk by 0.4 per cent. It means that infrastructure problems are lingering on. Agricultural growth also shrank by 1.4 percent in the last quarter.
Reserve Bank of India governor Raghuram Rajan has rightly pointed out that inflation is not yet dead and gone and can come back with agricultural problems surfacing and this year's output will be smaller than before. His inflation forecast for January 2016 is 6 per cent. His cautiousness about not lowering the interest rates by a big amount is therefore understandable. He has barely reduced the repo rates recently by 25 basis points (0.25 per cent). Industrialists are perhaps right in feeling disappointed but if the aim is to control inflation through monetary policy, then Raghuram Rajan has done the right thing.
Many economists have pointed out that while GDP growth rate is important, if high growth is not equitable and does not reduce the number of poor rapidly, it would only contribute to greater inequality in society. Income inequality has been rising in India and China and it is important that the governments of both countries have found means of reducing inequality by having effective social safety nets and a good tax system.
Inequality will be accentuated in India if the already poor small farmers lose their income and assets through distress sales when there is a drought. The poor in the countryside will become poorer and the landlords and rich farmers richer as the poor will sell cattle and other moveable assets to survive the drought.
The government will have to tackle the problem of monsoon deficit on a firm footing. It has a huge amount of food grains in the FCI which can be released in case of food shortage and prices need not rise due to the drought.
The government seems fully prepared to give aid to the farmers and there is provision for a safety net for poor farmers in the affected states of Haryana, Delhi and NCR, Rajasthan, and western UP. The government's preparedness at the state level includes subsidies on diesel, seed and fodder, and special measures to save horticultural produce from drought.
The fall in income of farmers has to be cushioned by various means of distress management like having effective employment guarantee schemes for farm labourers and artisans who will be without work during drought. Water management has to be done by the states in every village that is affected by drought. Repair and refurbishment of water bodies is important before drought strikes the area. This is especially important in the absence of a widespread canal irrigation system in India where 45 per cent of the land is still rain-fed.
Agricultural growth which has already suffered a sharp fall this year has to pick up because it provides livelihood to 52 per cent of the population. The political impact of disgruntled farmers is formidable.
A fall in their income will lead to an adverse impact on agricultural demand for industrial goods as there will be a sharp fall in purchasing power. Already the demand for fast moving consumer goods and consumer durable goods is slack and another problem year will add to the shrinkage in demand.
Rural credit is important at times of drought and if the Jan Dhan yojana is speeded up, it would help the farmers in need of credit. Farmers have to be protected during drought from falling into deep debt and penury.
Drought can cause or accentuate malnutrition among children hence more care has to be taken about the quality of the midday meal that is served to them in village schools.
Shortage of drinking water is another serious problem that will have to be tackled. Otherwise people from dry and parched countryside will migrate to cities looking for food, shelter and water.
Manufacturing growth however has to be kept high for job creation but it will be affected by drought also through the supply of raw materials to industry. By all accounts there could be serious problems in the near future about controlling the drought situation and preventing diseases that can occur when availability of safe drinking water is a problem.
The Modi government's ability to manage a crisis situation will be tested this monsoon season. If he is lucky there will only be a mild drought and India will be on the high growth path again!
(The writer is a Senior Fellow at Observer Research Foundation, Delhi)
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany
Read More +
PREV
