Monsoon Failure: A major challenge to the Government of India

The Indian Meteorological Department has warned that rainfall during the 2014 south-west monsoon season (June to September) is likely to be below normal to the extent of 90-96% of the long period average. It is well-known that the SW monsoon accounts for a significant percentage of the total rainfall in India. The long period (1901 to 2012) average contribution of the SW monsoon to the total rainfall in a year has been 75%, with the highest being 84% (in 1908) and the lowest being 69% (in 1987 and 1990). It is generally the case that whenever monsoon fails, Indian agriculture is immediately affected and this impacts the entire economy. Even though the share of agriculture (excluding allied activities) in total GDP of India has come down from 41% in 1950-51 to under 12% in 2012-13, the number of persons dependent on agriculture is still very high. Almost 50% percent of Indian workers are still employed in the agriculture sector (See here). Consequently, whenever agricultural production fails, income levels in the sector drop, leading to a fall in consumption expenditure. This, in turn, reduces the demand for products and services produced in the other sectors of the economy causing these sectors to also suffer.

To some extent there has been a decoupling of the agriculture sector from the rest of the economy, so that it is to some extent insulated from the adverse performance of agriculture. The chart below plots 10-year moving correlations between rate of growth of GDP and rate of growth of GDP from agriculture. (See note below chart for explanation of moving correlation.)

There is a clear break around 1994-95 (see vertical line at this point) when the correlations begin to dip sharply. The lowest point is reached in 2001-02 after which the correlations again begin to rise. It is possible to put forward the conjecture that the economic reforms, which began in 1990-91, represented a significant change in the inter-relationship between agriculture and the rest of the economy. Even though it is not as sharp in 1994-95, it is possible to discern a fall in the correlations beginning around 1990-91.

Does this mean that the economy as a whole is now insulated from an adverse monsoon? Such a conclusion would be unwarranted. Growth rates are still affected by an adverse monsoon and the consequent deceleration in agriculture. Adverse agricultural performance is still likely to shave off 1-2 percentage points from the rate the growth. The chart below shows moving 10-year moving correlations between (a) rate of growth of GDP and deviations from normal July-September rains and (b) rate of growth of agricultural GDP and deviations from normal July-September rains.

For a considerable number of years, the two correlations have been high – in excess of 0.6. However, during the period 1997-98 and 2002-03 (the segment within the two vertical lines) the two correlations dip to levels as low as 0.1. During this period, monsoon was below normal in 1998-99 (-6%), 1999-2000 (-9%), 2000-01 (-7%) and 2001-02 (-20%) and yet GDP growth rate remained persistently high except for 2001-02 when it fell to 3.8%. Growth rate of agriculture was negative in two of the 4 years: -0.6% in 1999-2000 and -8.5% in 2001-02. It is not clear why there was a delinking between monsoon rains and growth rates during this period and additional research is required to come up with answers. Various reasons are possible: reduction in importance of monsoon dependent kharif crop, better irrigation facilities, reduced dependence of rural households on agricultural incomes. None of this is conclusive and it is not clear why these effects did not become permanent. After 2002-03, the strong association between monsoons and growth rates has been re-established.

The likelihood of poor July-September rains for this year (2014-15) is being blamed on the El Niño weather system which affects the world every few years. Of course, there is little that can be done about the weather system since the fault, literally, lies in our stars, or more precisely, in our star – the sun. Numerous studies have shown close connection between sunspot activity, El Niño weather systems and rainfall (See J. Curt Stager and others or David Rind). Increasing sunspot activity is associated with increasing rain while decreasing sunspot activity is associated with decreasing rains. This is true for the Indian monsoon rains as well (See Hiremath and Mandi). It is expected that sunspot activity is likely to remain weak for a few years in the future, which means that the south-west monsoon might also remain weak in the years to some. This certainly does not augur well for India.

It is unfortunate that the El Niño weather system has hit India within a few months of the BJP government taking office. The problems that are likely to emerge are going to be quite challenging:

1. Poor agricultural performance depresses incomes in the rural areas. It is likely that many will be pushed into poverty.
2. Lower agricultural income impacts the buying power of the rural sector which will hurt other sectors of the economy that produce products and services bought in the rural sector
3. Domestic food prices will be expected to rise and, worse, since the El Niño is a global phenomenon, world food prices are also likely to rise. It has been estimated that El Niño has accounted for 20% of commodity price inflations over the years (See Allan D. Brunner).
4. Rural poverty is especially susceptible to inflation in general and food inflation in particular. Hence, in addition to point 1 above, this will also likely raise poverty levels in India.
5. If food imports become necessary, this will impact India’s import bill especially in a year when uncertainty in the Middle-East could drive up oil prices

It is difficult to prepare a comprehensive list of what needs to be done to combat the drought-like situation that seems likely. Some of the following seem important:

1. Water is likely to be very scarce and prioritising its use for drinking and irrigation purposes will be essential
2. With the kharif crop likely to be adversely affected, wherever possible, compensatory rabi cultivation needs to be undertaken.
3. Allied activities in the rural sector – animal husbandry – will also be affected. Provision of fodder to animals will be required to avoid distress sale of such animals.
4. Rural incomes are likely to be adversely affected. In such a situation, employment guarantee schemes, such as MNREGA, will be able to provide a lifeline to the rural sector. Despite its grave reservations about this scheme, the government would be well advised not to wind it down, especially this year. Providing income to rural areas will not only help sustain livelihoods but will also sustain rural demand. This will help limit the adverse impact that the drought might have on the rest of the economy.
5. Farmer suicides have been the tragic bane of agriculture in numerous states in India. There is a danger that this might see a strong resurgence due to the drought. The government must stand ready to assist those who might be unable to repay the loans they have taken.
6. Food shortages are likely to be grave. The government has already stated that it will use buffer stocks of food to keep inflation in check. This must be followed up by adequate distribution of foodgrains wherever these are likely to be most required.