GDP growth may dip to 5% if monsoon fails to revive

GATHERING STORM

Never too late: Rain clouds shower hope

But Govt Not Taking Any Chances

Prabha Jagannathan NEW DELHI

INDIA'S Met office is reasonably sure that the elusive monsoon would arrive in Mumbai and the western coast over June 21-23. Still, the Centre is urgently gearing up with a comprehensive contingency plan to tackle the possibility of the crucial south-West monsoon being delayed beyond June 23 in the central and northern regions of the country — a development that could hit crop production countrywide. The Centre is scurrying to supply drought-resistant varieties of seeds to regions dependent on rain-fed agriculture. A delayed monsoon also dims any hope of export of grains being revived in the near term.
    With the global recession impacting growth in manufactured goods and services, the government was counting on agriculture to grow at least 2.5% to shore up the economy. A bad monsoon will mean poor agricultural output and, in turn, poor sales for everyone from consumer goods manufacturers to tractor makers to motorcycle manufacturers.
    India Inc is anxiously watching the progress of monsoon. "We are watching this space, and listening to what the weatherman has to say everyday. Subject to the (behaviour of) monsoon in the next few months, we should see good growth for the FMCG sector. The business depends on monsoon, and the country depends on monsoon," Nitin Paranjpe CEO & MD, Hindustan Unilever (HUL), told ET NOW, this newspaper's business channel. HUL, the Indian arm of Unilever, is the country's largest maker of fastmoving consumer goods (FMCG). ET NOW has reported extensively on the slow progress of the monsoon and its likely fallout.
    Mr Paranjpe's sentiments are echoed by Adi Godrej, chairman, Godrej Group. "Well, the impact of a weak monsoon is always negative, there's no doubt about it, not just on FMCG but on the economy as a whole. But I think it is too early to tell that the monsoon is going to be a weak one, just because it's delayed by about a week doesn't mean much. I think what is very important is how the spatial and the temporal distribution of the monsoon pans out. It's too early to tell. All the met indications show that the monsoon should be within the normal levels," Mr Godrej told ET NOW. GDP growth may dip to 5% if monsoon fails to revive
    IF the monsoon fails to revive the consequences could be far-reaching. GDP growth may drop to 5% this financial year. With the government running up double digit fiscal deficits in its efforts to combat the global financial crisis by way of various stimulus packages it has little money left to throw into the economy if the monsoon fails. At stake is the country's food security and sustained economic growth — although the share of agriculture in total output is only 18%, three-fifths of the population still lives off farms and related activity.
    "If the monsoon delayed GDP growth at 6% is not possible. It would be shaved off by at least 2 percentage points... "Samir Barua director IIM-Ahmedabad told ET NOW.
    Nonetheless other observers feel it is too early to reach definitive conclusions. "The monsoon will have to be really, really much worse than has been forecast for it (agricultural growth) to be negative, so I don't see that happening," Atsi Seth, chief economist at Reliance Equities told ET NOW.
    The cumulative rainfall during June 1-17 period as a whole has been deficient by a whopping 45%. The actual rainfall was 39.5 mm against a normal of 72.5 mm and, out of the 36 meteorological sub-divisions, rainfall was excess-to-normal in eight divisions but deficientto-scanty in 28 sub-divisions. The worst impact has been the poor geographical distribution of rainfall, preventing a variety of crop across regions from being sown. Although July is the key sowing period for staples, sowing starts as early as mid-June for several other crops.
    A top level meeting of agriculture officials from key states that have been affected by the delayed monsoon so far (including state agriculture ministers and agriculture commissioners) is scheduled here on June 25 to monitor the state of preparedness on contingency strategies for different regions should the rains play truant beyond June 23.
    The invited states include Gujarat, Madhya Pradesh, Chhatisgarh, Karnataka, Andhra Pradesh, Maharashtra, Tamil Nadu and Jharkhand and Bihar — all from the north peninsular, western or adjoining central plains region. Kharif, or summer-sown, south-west monsoon-driven crops, accounted for 52% of the estimated food crop output of 229.85 million tonnes in the year to June 2009, according to the agriculture ministry.
    "Only some models such as the numerical prediction model have suggested a revival in the monsoon by June 25. At the last presentation to us, the India Meteorological Department (IMD) indicated a June-18 revival. What if monsoon is now delayed beyond June 25 We have to be prepared with contingency plans for every eventuality since agriculture is the underpinning of our economy and it remains mainly rainfed. This meeting is to chart the next urgent contingency course of action," a government official said.
    There is thus considerable worry within the government over farm output this year. "Under no circumstances do we want to be caught in the sort of situation we witnessed in 2002, when virtually the entire country was declared drought-struck and we had to resort, for the first time in several years, to high-priced foodgrain imports to meet grain shortfall and temper retail prices," the official emphasised.
    The mean contribution of rice — the kharif staple — alone to the total annual food grain production is 43%, while wheat and coarse cereals contribute 34% and 15% respectively. But poor rains translate into poor water availability and hence rice cultivation under normal water submergence (up to 5 cm) would not be possible.
    Significantly, although the farm ministry is surplus on special drought-resistant seeds, it is unsure about whether there are enough varieties tailored for different regions. "We're especially concerned about the large rainfed tracts in Chhatisgarh, Jharkhand, MP, AP, Karnataka and Maharashtra and whether the necessary variety of seeds is available in plenty for varied regions," a senior farm ministry official told ET.
    Delayed rains have adversely impacted sowing of kharif staple, paddy, besides other key crops such as oilseeds, pulses, coarse cereals and cotton in the northern peninsula, western and central plain regions of the country, which are normally covered by the monsoon by June 15. Sowing in pulses, for instance, has only covered 1.81 lakh hectares (ha) up to now compared to 1.88 lakh ha in the same period last year. Oilseeds have covered 4.14 lakh ha up to now from June 1 compared to 5.02 lakh ha in the corresponding period last year.
    A marked shortage of coverage of coarse cereals (ragi, jowar) is also worrisome, according to farm ministry officials. In fact, paddy sowing is the only ray of hope so far. The area under paddy is 8.01 lakh ha up to now compared to 7.15 lakh ha in the same period last year.
    Scientific and agronomic experts are understood to have expressed the view to the government that if the monsoon does not revive by June 21, matters could take a serious turn. Senior ICAR scientist Dr AK Singh has reportedly cautioned that the shortfall in area coverage and consequently in production could only be made up if the monsoon advances steadily to cover the rest of the country by June 21. Some others have estimated that the fortnight-long delay in rains may have already affected overall output by around 10%, besides increasing the costs to the farmer for crucial farm inputs such as irrigation, fertilisers, pesticides and seeds. In turn, that would also impact his ability to increase area coverage for crops. Normally, the entire country is covered by monsoon by June 25 except for the north-west region.
    Summer rains feed key reservoirs through the country for the winter-sown crops or rabi crops (October-February). However, main reservoirs throughout the country have been showing significantly lower than normal storage levels since the beginning of the month.
    The government may also find itself worrying over Climate Prediction Centre of Australia issuing an El Nino alert last Friday. The institution indicated a possible drought in that country's main wheat states of New South Wales and Victoria. Australia's wheat production had dipped to less than half during two El Nino episodes in 2002 and 2006.
    Indian officials say its too early to draw conclusions about the impact of ET Nini. "There is no one-to-one relationship between El Nino and monsoon. And in all the very strong El Nino years, we've had very strong monsoon; so we cannot correlate just like that. But presently, if you are interested in the present scenario, then we can expect good rainfall by the end of this month. So, whatever delay is there, partly it'll be made up in the peninsular India region," A B Mazumdar Deputy Director General, IMD told ET NOW.
    So far, the advance of monsoon has been delayed by around 10 days over Orissa, Maharashtra and North Andhra Pradesh, and by around one week over Bihar, Chhattisgarh, Jharkhand and South Madhya Pradesh & South Gujarat.
    The monsoon hit southern India on May 23, well ahead of the normal date of June 1. Though the early onset of monsoon is good for the economy, the distribution of rains in the subsequent four months is more crucial to agricultural output.
    The monsoon weakened in end May and the first week of June, staying virtually static since June 7— a development being attributed to the El Nino condition. El Nino occurs when sea surface temperatures warm up in the central equatorial Pacific Ocean, but this is only one aspect of a broad scale shift in wind, air pressure and rainfall patterns that alters the climate in the tropics and sub-tropics.
    (With Inputs from ET NOW)

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