EL NINO AND ITS IMPACT ON INDIAN ECONOMY

El Nino is a weather phenomenon arising from warming of sea-surface temperatures in the Pacific Ocean around the equator resulting in changes to wind patterns that can trigger floods and drought thereby curbing food supply. A majority of weather forecasting models indicate that chances of a strong El Nino developing around the middle of 2014 exceed 70 per cent.

A spike in Pacific Ocean sea temperatures in 2014 as compared to those seen in previous El Nino years and the rapid movement of warm water eastwards have increased concerns that an El Nino weather pattern this year could be one of the strongest in several decades, according to an Australian climate scientist Dr Wenju Cai. 

However, the UN World Meteorological Organization had indicated during mid April 2014, that it was too early to assess its likely strength. Meteorologists say the prospect of an El Nino will likely be firmed up in the next month or two, although forecasting the strength of such a weather event is hard to do.  Australia's weather bureau and Japan's meteorological agency are expected to issue their next El Nino outlook reports by mid May 2014. 

Incidentally, the worst El Nino on record in 1997-98 was blamed for massive flooding along China's Yangtze river that killed more than 1,500 people. A strong El Nino this year will increase fears that production of many key agricultural commodities in Asia and Australia will suffer. 

A good agricultural performance is a must for India to raise demand for services and industrial products. Also, about 30 per cent of the manufacturing sector is agriculture-based and a bumper crop ensures the supply of raw material for industry at relatively lower prices. About 60 per cent of net sown area of the country is rain-dependent. Hence, India is very much ill prepared to face a strong El Nino, especially when its gross domestic product (GDP) growth has hit the nadir of 5% in 2013 and every 1 percent deficiency in rainfall will result in reduction of India's GDP by 0.35 per cent.

However, Stanford scientists too have warned of a likelihood of a weak monsoon in India with significant changes in the patterns of extreme wet and dry spells during the monsoon which may increase the risk of drought and floods in central India, which is the core of the monsoon region and has extremely high population densities that depend on rain fed agriculture. According to Indian Meteorological Department, Wet and dry spells are defined as three or more consecutive days of extremely high or low rainfall, respectively and rainfall during the months of July and August, are considered as the peak of the South Asian summer monsoon. The South Asian summer monsoon is an annual wind-driven weather pattern that is responsible for 85 per cent of India's annual precipitation and is vital for the country's agricultural sector. Researchers, including two Indian origin-scientists, show that the intensity of extremely wet spells (short periods of very heavy rainfall can create humanitarian disasters) and the numbers of extremely dry spells during the South Asian Monsoon season (during critical crop growth stages, too many days without rain can reduce yields or lead to crop failure) have been increasing. Private weather forecaster Skymet expects 'below-normal' monsoon this year with a probability of 40 per cent. 

India is expected to see 'below-normal' monsoon this year with Met department (IMD) forecasting 95 per cent rainfall because of the El-Nino effect. According to an Assocham report, about five per cent deficit of rains due to possible El Nino factor could have a bearing on economic growth by 1.75 per cent in the 2014-15 fiscal (loss to the GDP of about 1.75 per cent is almost Rs 1,80,000 crores) affecting lakhs of unskilled jobs. Additionally, deficiency in rains and drought conditions could also increase food inflation, higher imports, widening of Current Account deficit, depreciation of Indian currency vis-a-vis other currencies thereby spooking up energy prices.

STEPS TO LIMIT EL NINO EFFECT:

  Assocham submitted a report to the Government highlighting the strategy to be implemented immediately to minimise the El Nino effect on Indian economy. The strategy is as follows:

1. The government must expand the farm insurance cover and advise financial institutions to settle crop insurance claims in drought-hit areas without delay.
2. High quality seeds of alternate crops should be distributed among farmers in the drought-affected areas.
3. The minimum support price (MSP) of alternative crops to be cultivated in drought-hit areas should be kept attractive.
4. The government should realistically assess the situation in order to estimate the shortfall of oilseeds and pulses and help the traders with market intelligence.
5. The government shall bring down the cereal inflation by liquidating the extra stock that the government is keeping over and above the buffer requirements.
6. Scrapping of the APMC Act
7. Free flow of agricultural goods across states to bridge demand- supply gap
8. Prevent hoarding
9. Create relief employment programmes
10. Prepare alternative cropping plan and fuel subsidy to farmers to protect standing crops.