Lower farm output could worsen inflation, hurt economy further
Krittivas Mukherjee Straits Times 17 Jul 12;
NEW DELHI - India could be staring at lower farm output this year due to deficient monsoon rains, sparking worries that it may worsen inflation and pile pressure on a government already struggling with a slowing economy.
The nation is the world's second-largest producer and a major exporter of commodities like rice, sugar, wheat and cotton, and a bad monsoon could mean a supply squeeze and price hike in domestic and global markets.
'There are reasons to worry if the rains are not good... which is a possibility,' Mr D.K. Joshi, chief economist at rating agency Crisil, told The Straits Times.
Rains irrigate nearly 60 per cent of arable land in India where 600 million people - about half the population - are connected to the farm sector, which accounts for about 15 per cent of the trillion-dollar economy.
Bad rains will almost certainly hit output, possibly stoke the already-high inflation and force the government to consider costly handouts to farmers - its core voter bank - at a time when the economy is flagging and the fiscal deficit is getting out of hand.
The country's annual monsoon season runs from June 1 to Sept 30, and this year, the deficit up till last week stood at 22 per cent below average. The rains were down by a third until July 4.
The rains have picked up since, ensuring the country avoids a drought. But they may have come too late for farmers, as the window for sowing rain-fed crops such as rice, cotton, pulses and sugar cane is almost over, affecting key farming states. Sowing, as of the middle of this month, had contracted by a fifth of what it was last year.
Farm Minister Sharad Pawar said: 'This year, the monsoon is playing hide and seek. It is a challenge for our farmers to maintain the same performance as compared with the last two years.'
An uncertain monsoon could not have come at a worse time. Growth has slowed to 5.3 per cent in the quarter ending in March, the lowest in nine years. Foreign investor confidence is at a low, battered by policy flip-flops, lack of reform and political inertia.
Inflation has crept back up - the wholesale price index was 7.25 last month - with prices of fruits and vegetables rising 50 per cent to 70 per cent over past months.
A poor monsoon could spell trouble for the Manmohan Singh government, already battling an economic slowdown and fleeing investments. Faced with a fiscal deficit of 5.8 per cent of gross domestic product from last year, Dr Singh may not have much ammunition to pump up the economy in the manner that India faced down the 2008 global crisis by investing in a massive rural jobs scheme and writing off US$15 billion (S$19 billion) worth of farm loans.
Food shortages could also cause inflation to balloon next year, just as the government prepares for nationwide polls that must be called by May 2014.
'The monsoon's impact on Indian politics cannot be overstated,' said political commentator Amulya Ganguly.
