Dealing with a possible drought

Jayshree Sengupta

As usual there is speculation about the monsoon.  The government has declared that this year the monsoon will be at 88 per cent of the long-term average. A deficient monsoon in 2015 will certainly aggravate the stress of farmers who suffered losses due to the unseasonal rain in the last winter season. In some cases the rain and hail completely ruined the rabi crop, leading to a spate of suicides.  

A poor monsoon will also dent the high growth profile that India is currently enjoying. India's growth forecast has already been revised downward; from 7.5 per cent it has been lowered to 7.3 per cent by Indian credit rating agency CRISIL.

 Still we are patting ourselves on the back that we are ahead of China. But we must remember that China has had double-digit growth for nearly 30 years and now it is time for the economy to cool down — a policy deliberately promoted and designed by the Chinese government. China's per capita income at $8,211 is way above India's per capita of $1,499 and with GDP at $10.36 trillion, China is far ahead of India's $1.8 trillion in terms of total income of the country. Even so, the prospect of India having a higher rate of growth than China is generating a 'feel-good' factor and the world is taking notice of India's fast growth.

The reason for optimism about India's future in the next one year is based on the fact that manufacturing growth picked up to 8.4 in the fourth quarter (January to March 2015) which is good news for job prospects of youth. But the core sector (steel power, mining, coal, fertilizers, cement, gas) growth has shrunk by 0.4 per cent. It means that infrastructure problems are lingering on. Agricultural growth also shrank by 1.4 per cent in the last quarter.

 RBI Governor Raghuram Rajan has rightly pointed out that inflation is not yet dead and gone and can come back with agricultural problems surfacing and this year's output will be smaller than before. His inflation forecast for January 2016 is 6 per cent.  His cautiousness about not lowering the interest rates by a bigger margin is therefore understandable. He barely reduced the repo rates recently by 25 basis points (0.25 per cent). Industrialists are perhaps right in feeling disappointed but if the aim is to control inflation through monetary policy, then Raghuram Rajan has done the right thing.

As has been pointed out by many economists that GDP growth rate is important but if high growth is not equitable and does not reduce the number of poor people rapidly, it would only contribute to greater inequality in society. Income inequality has been rising in India and China and it is important that the governments of both countries have found means of reducing inequality by having effective social safety nets and a good tax system. 

Inequality would be accentuated in India if the already poor small farmers lose their income and assets through distress sales when there is a drought. The poor in the countryside would become poorer and the landlords and rich farmers richer as the poor would have to sell cattle and other moveable assets to survive the drought.  

The government will have to tackle the problem of monsoon deficit on a firm footing. It has a huge amount of food grains with the FCI which can be released in case of food shortage and prices need not rise due to the drought.

The government seems fully prepared to give aid to farmers and there is a provision for a safety net for poor farmers in the affected states of Hariyana, Delhi and NCR, Rajasthan, and western UP.  The government's preparedness at the state level includes subsidies on diesel, seed and fodder, and special measures to save horticultural produce from drought. 

The fall in income of farmers has to be cushioned by various means of distress management like having effective employment guarantee schemes for farm labourers and artisans who would be without work during drought. Water management has to be done by the states up to the village level.  Repair and refurbishment of water bodies is important before a drought strikes the area. This is especially important in the absence of a widespread canal irrigation system in India where 45 per cent of the land is still rain-fed.

Agricultural growth, which has already suffered a sharp fall this year, has to pick up because it provides livelihood to 52 per cent of the population. The political impact of disgruntled farmers is formidable. A fall in their income could lead to an adverse impact on agricultural demand for industrial goods as there would be a sharp fall in the purchasing power. Already the demand for fast-moving consumer goods and consumer durable goods is slack and another problem year would add to the shrinkage in demand. 

Rural credit is important at times of drought and if the Jan Dhan yojana is speeded up, it would help farmers in need of credit. Farmers have to be protected during drought from falling into deep debt and penury.

Drought can cause or accentuate malnutrition among children; hence, more care has to be taken about the quality of the midday meal that is served to them in village schools. 

Shortage of drinking water is another serious problem that will have to be tackled; otherwise people from dry and parched countryside would migrate to cities looking for food, shelter and water. 

Manufacturing growth, however, has to be kept high for job creation but it would be affected by drought also through the supply of raw materials to industry. 

By all accounts, there could be serious problems in the near future about controlling a drought-like situation and preventing diseases that could occur when the availability of safe drinking water becomes a problem. The Modi government's ability to manage a crisis situation will be tested this monsoon season. If he is lucky, there would only be a mild drought and India would be on the high growth path again!