Chennai: While GDP growth for this year could slip to 5.8 per cent and CPI inflation rise to 4.8 per cent if crude prices remain around $105 per barrel amid the West Asia crisis, the threat of El Niño and a below-normal monsoon could further weigh on growth and stoke inflation. The impact of El Niño on Kharif output could range from 1 to 23 per cent depending on its intensity, and the government may need to spend an additional ₹30,000–35,000 crore on fertilizer subsidies to support the farm sector, says Aditi Nayar, Chief Economist at ICRA.
Q) What is the forecast for the southwest monsoon this year? How has El Niño historically affected rainfall?
As per the IMD’s initial forecast, the monsoon is expected at 92 per cent of the long period average (LPA), which classifies as below normal, given that 96–105 per cent is considered normal. There is also a likelihood of El Niño, which typically weakens the monsoon.
Historically, India has experienced El Niño in 8 of the last 24 years—roughly once every three years. In those years, monsoon rainfall ranged from 1 to 22 per cent below normal. Kharif output also declined in all those instances, with contractions ranging between 1 and 23 per cent depending on the intensity of El Niño. In four of those eight years, even Rabi output could not offset the Kharif losses, leading to an overall contraction in agricultural output.
A mitigating factor this year is strong reservoir levels, which are above both last year’s levels and historical averages. This provides some buffer against delayed or deficient rainfall.
Q) Given that many regions depend on rainfall, will the impact vary across states?
Yes, the impact depends on both geographical and temporal distribution of rainfall. When rainfall is deficient, farmers often leave less productive land fallow and concentrate resources on more fertile land, limiting the overall output loss.
Reservoir levels also play a critical role. Even if June and July rainfall is weak or delayed, adequate water storage can offset some of the impact. August rainfall is crucial for crop development, while excessive rain in September can be damaging. Therefore, both timing and spatial distribution of rainfall will determine the final Kharif output.
Q) Based on past El Niño years, which crops are most affected and how severe is the impact on food production?
Farmers typically adjust cropping patterns in anticipation of weak monsoons, shifting toward less water-intensive crops. Even so, Kharif output has declined in all El Niño years in the past two decades, though the extent varies widely—from 1 to 22 per cent.
In half of those years, Rabi crops failed to compensate for Kharif losses, resulting in an overall decline in food production. The severity ultimately depends on the intensity of El Niño and actual rainfall distribution.
Q) How could the Middle East crisis, alongside El Niño, affect the farm sector, especially through fertilizer availability and prices?
Fertilizer availability is currently adequate for most nutrients, though there are some constraints in specific categories. However, the situation could evolve depending on how the crisis unfolds, especially since fertilizer imports typically pick up in May ahead of sowing.
We expect the fertilizer subsidy bill to rise by ₹30,000–35,000 crore above the FY27 budget estimate. The government is likely to absorb most of the price increase, so availability rather than pricing could be the key concern for farmers.
Q) Has the government released data on fertilizer availability for Kharif?
Available indications suggest that supplies are adequate for most fertilizers, barring a few exceptions.
Q) If El Niño impacts farm incomes, which sectors of the economy will feel the spillover effects?
Sectors closely linked to rural demand—such as automobiles, tractors, construction, cement, steel, and FMCG—are likely to see negative effects.
However, some sectors could benefit. Higher temperatures and lower rainfall typically boost demand for electricity, air conditioners, refrigerators, and beverages. So, there will be both winners and losers.
Q) What about credit segments like agri credit and microfinance?
The impact can vary. In some cases, adverse weather increases demand for agri credit—for instance, if farmers need to re-sow crops after unexpected rainfall damage. So, credit demand may actually rise depending on how conditions evolve at the ground level.
Q) What is the combined macroeconomic impact of a weak monsoon and the West Asia crisis?
Earlier, we had projected FY27 GDP growth at 7.1 per cent and CPI inflation at 4–4.2 per cent. Factoring in the West Asia crisis, we now assume an average crude oil price of $85 per barrel, which lowers GDP growth to 6.5 per cent and raises inflation to 4.5 per cent in the base case. This assumes no increase in retail fuel prices, with excise duties absorbing the shock.
A potential El Niño could further reduce growth and increase inflation, though the extent is uncertain at this stage.
Q) If crude prices remain elevated at around $105 per barrel, what would be the impact?
If crude averages $105 per barrel for the year, GDP growth could decline to around 5.8 per cent, while CPI inflation could rise to about 4.8 per cent.
Q) Can past El Niño trends help estimate additional impact on growth and inflation?
The impact of El Niño varies significantly with its intensity, making it difficult to quantify precisely at this stage. However, it would clearly pose downside risks to growth and upside risks to inflation.
Q) What policy measures should the government take to manage these risks?
The government has already acted by reducing excise duties to prevent an immediate rise in fuel prices, which is a prudent step. Fuel price increases tend to be sticky, and delaying pass-through helps manage inflation expectations.
On the agriculture side, ensuring timely availability of inputs is critical. Providing real-time weather information to farmers can also help them optimise sowing decisions and mitigate losses.
Q) Is weather-related information effectively reaching farmers?
Access to real-time information has improved significantly, aided by digital platforms and mobile connectivity. While it may not reach every farmer uniformly, there has been substantial progress in dissemination, which can help farmers make better-informed decisions.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: deccanchronicle.com
