Scanty monsoon to shave off growth, push up prices

June 12, 2014 02:12 am | Updated November 16, 2021 06:45 pm IST - New Delhi:

The India Meteorological Department’s projection of 7 per cent below normal rainfall could push average inflation by half a percentage point, and the resultant full-blown drought, of the kind that struck India in 2002, could knock half a percentage point from the Gross Domestic Product (GDP) growth rate, experts have warned.

Food prices jumped over 20 per cent after the 2009 drought as the UPA government had increased minimum support prices (MSP) for various farm produce. Retail inflation averaged 12.3 per cent during the year. Drought-related cost overruns in the fertilizer and fuel subsidies bills were roughly 0.2 per cent of the GDP in 2009 and food imports had surged by $5 billion or 65 per cent more than in 2008.

The north-western regions are likely to be the most affected, with rains predicted to be 15 per cent below normal.

Top government officials said projected deficient rainfall in July was worrisome as it was the crucial month of sowing. However, State granaries are well stocked.

Drought-related cost overruns in the fertilizer and fuel subsidies bills were roughly 0.2 per cent of the GDP in 2009 and food imports had surged by $5bn or 65 per cent more than in 2008.

Farm output in 2002-03 was 6.3 per cent lower than the previous year. This has shaved 1.5 percentage points from the year’s GDP growth rate. During the years of poor monsoons 2004 and 2009, agricultural output fell 8.8 per cent and 1.3 per cent, respectively in the fourth quarters when the kharif crops were harvested.

Generally, if rainfall is deficient by 10 per cent, food inflation rises by 2.8 percentage points, according to HSBC Global Research. “Depending on the severity of rainfall deficiency, there is potentially a 50-90 basis points downside to our GDP estimate of 5.6 per cent for 2014-15 and average inflation could rise half a percentage point from our central estimate of 8 per cent,” said Citi Global Research.

The deficient monsoon in 2002 and 2004 had a negligible impact on food inflation as the MSP hikes during 2001-2008 were moderate.

Commerce Secretary Rajeev Kher told reporters on Wednesday that the government was closely watching retail and wholesale prices of onions and milk on a daily basis for the impact of monsoons and has so far found no need for export restrictions on the two commodities.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.