El Niño Looms Over India’s Economy

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Source: www.livemint.comDELHI – The Associated Chambers of Commerce and Industry of India (ASSOCHAM) is predicting the climatic event El Niño may have a significant impact on the Indian economy later this year, and has submitted a twelve-point strategy to the government to help mitigate its effects.

El Niño, a temporary change in the climate of the Pacific Ocean that occurs every three to seven years, often causes droughts in Southeast Asia and wetter weather in North America.

ASSOCHAM’s latest projections estimate a 5 percent deficit in rainfall associated with El Niño, which may cause a GDP loss of up to 1.75 percent (around US$30 billion) in India.

According to ASSOCHAM, an increase in agriculture by one unit historically raises demand for industrial goods by 0.47 percent and services by 0.12 units. Because of this, India’s GDP often falls 0.35 percent with every one percent deficiency in average rainfall.

In short, rising agricultural productivity increases demand for industrial products while a deficit in rainfall negatively impacts demand for services such as trade, transportation, banking and insurance.

With agricultural inputs critical to the production of various chemicals and pharmaceutical supplies, consumer items and processed foods, manufacturers in India should anticipate slightly higher prices for supplies and agricultural commodities later this year.

The effect on low-income households is predicted to be the most severe side-effect, however, as food and vegetable oil prices become inflated. The average household in India spends roughly half of its yearly expenditures on food, and high food prices have the potential to inflict a strong ‘hidden tax’ on the poor, according to the ASSOCHAM report.

In response to these concerns, ASSOCHAM has submitted a 12 point strategy to the Indian government to contain any potential negative economic impact from El Niño later this year, including:

  • Expanding farm insurance coverage and advising banks and financial institutions to settle crop insurance claims in drought-hit areas in a timely manner.
  • The Indian government must realistically assess the ground-level situation to estimate potential shortfalls of oilseeds and pulses, and assist traders with gauging impacts..
  • High quality seeds of alternative crops should be distributed among farmers in drought affected areas.
  • Curb cereal inflation by liquidating government reserves.
  • Lower the import duty on fruits if domestic supply is negatively impacted.
  • Allow for the free flow of agricultural goods across states through the elimination of the Agricultural Produce Market Committee (APMC) act.
  • Prevent hoarding by limiting stocks and allowing the Forward Markets Commission (FMC) to closely watch the supply of key agricultural commodities.
  • Distribute pulses through public channels to households in need of relief.
  • Initiate Relief Employment Programs in drought-affected areas.
  • Prepare alternative crop plans and provide financial and technical assistance to farmers.
  • Initiate structural and institutional reforms in agriculture that will facilitate private investments and boost supply.
  • Provide fuel subsidies and ensure sufficient power is provided to drought hit areas to enable the use of irrigation pumps.

According to the Indian Meteorological Department (IMD), India is expected to experience a below normal monsoon this year with only 95 percent rainfall because of the El Niño effect.

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