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Economists split on El Nino impact


NEW DELHI, MAY 1: With about three weeks to go for the monsoon to hit the Indian coasts, weathermen, economists and policymakers are looking to the sky to assess the possible impact of El Nino and its implications for the economy.
Three agencies have given differing forecasts. The Indian Meteorological Department’s forecast is of a largely normal monsoon while Skymet’s forecast had pegged it at the lower margin, creating apprehensions. AccuWeather has predicted a worse scenario.
The Southwest Monsoon hits the country between May 20 and May 25 and covers the entire country by July 2. More than the rainfall, the rain spread would also be keenly monitored to assess the impact.
The world agrees on the potential of the El Nino pattern later this year following the end of 3 years of La Nina. The world ocean surface temperature has hit an all-time high, raising the chances of extreme weather conditions.
The hotter ocean provides energy for storms, melting of ice, and raising sea levels. The effect of El Nino differs across countries but it is associated with droughts in India and Indonesia. The weather implications of El Nino and La Nina are not definite but probabilistic. In spite of La Nina the past 3 years have been warm, analysts said.
The farm sector has profound implications for the Indian economy as a whole, which is already faced with headwinds from the COVID-19 wave devastations, the Ukraine war, and rising interest rates.
The two weather phenomena make it even more complex. A poor monsoon made worse by El Nino can be potentially an added worry for the country if it cannot be managed and leads to production failure in agriculture and slowing of inputs and consumer products from industries.
Nilabja Ghosh, Professor at the Institute of Economic Growth, said: “Given the high uncertainty and disagreement over the monsoon outlook even if El Nino is a surety and given the possibility of production impact and the power of the state to make a timely intervention, the farm economy should not slow down, discourage input supply and marketing and retard national growth.”
She said: “While monsoon may even turn out normal, the chances of seasonal or regional shortfalls remain, especially with El Nino… and the Government has to use its credit, water, and food policy to impart and test its performance in resilience for production farmer welfare, food security and economic growth.”
“If we look at the data for the past 50 years, it can be said that on an average, an episode of a strong or moderate El Nino has led to deficient or drought-like situations in India which not only affected agricultural production adversely but also corresponded to lower GDP growth”, Rajani Sinha, Chief Economist of Care Ratings, said.
Sinha said the prediction of El Nino has come at a time when India is already battling high inflation, growth slowdown concerns and weather fluctuations (heat waves and unseasonal rains). According to the report, a below-normal monsoon can further aggravate the situation.
It is worth noting that prices of major kharif crops such as rice and pulses are already at elevated levels and a bad monsoon could affect the production of these commodities putting upward pressure on food inflation.
India Ratings and Research (Ind-Ra) said it believes the resilience of Indian agriculture towards adverse weather shocks has undoubtedly increased over the years, owing to increased irrigation intensity. However, the ability of the sector to absorb the shock varies across States and is linked to the overall area under irrigation.
According to India Ratings, at the all-India level, the area under irrigation was 54.32% in 2018-19 (FY19) compared with 41.7% in 1996-97.
As a result, the correlation between the kharif food grain output and monsoon rains from June till September was 0.4 over FY13-FY21 compared with 0.6 and 0.8 during FY97-FY04 and FY05-FY12, respectively.
Ind-Ra believes another factor that has lessened the adverse impact of the deficient monsoon on India’s agriculture is the increase in the rabi crop output. Historically, agriculture production used to be higher in the kharif season than in the rabi season.
India Ratings said: “Rabi food grain output/production over the past several years has been mostly either on a par or higher (consistently during FY18 to FY22) than kharif production.”
There were three potential risks that India would need to guard against: El Nino conditions which could create drought-like conditions and lower agricultural output and elevate prices, geopolitical developments, and global financial stability.
Monsoon rainfall is expected to normal this year, El Niño threatens the farm output. The European war and banking crisis in the West continues to trigger uncertainties.
“It is important to be vigilant against potential risks such as El Niño conditions creating drought conditions and lowering agricultural output and elevating prices, geopolitical developments and global financial stability.
“All these three could affect the favourable combination of growth and inflation outcomes currently anticipated,” the finance ministry said in a report.