Monsoon vagaries

Lord George Curzon’s famous remark about the Indian economy’s performance being a “gamble on the monsoon” is often invoked during years of low rainfall. The India Meteorological Department has, in its first long-range forecast issued on Thursday, indicated a 56 per cent probability of ‘deficient’ or ‘below-normal’ rainfall during the south-west monsoon season from June to September. It is true that a poor monsoon mainly impacts the farm sector, which accounts for only 12 per cent of India’s GDP today as against 55-60 per cent during the time of the early 20th century British Viceroy. Yet agriculture and the monsoon still matter, particularly for what they do to price levels and how they influence inflation expectations in the economy. This, to an extent, also constrains the ability of the Reserve Bank of India (RBI) to cut interest rates — just when it is most needed.

The next government set to take over at the Centre in a month’s time will confront a dual challenge: the prospect of a weak monsoon (which is what most global weather agencies are also forecasting) and reviving an investment-starved economy. But with focus and some imagination, the challenges can be met. The most potent tool the government can deploy is its grain stock of about 50 million tonnes – 2.3 times the required minimum reserve. There is no better time to dispose of these surplus foodgrains than now. Not through ration shops, but by selling in the open market at the minimum support price (MSP). Ensuring that markets throughout the country are well-supplied, apart from anchoring inflation expectations, will also help the government save on the huge carrying cost of excess stocks in public warehouses. Simultaneously, it should freeze MSPs at current levels for all crops, barring maybe oilseeds and pulses, so that farmers are induced to grow more vegetables and other produce whose supplies may get affected. These supply-side measures, along with a clearly laid out plan of fiscal consolidation within weeks of the government being formed, would embolden the RBI to embark on monetary easing sooner than later.

At the same time, we need more durable solutions to deal with the vagaries of the weather, and these aren’t always about drought. Take 2013-14, which saw widespread crop damage from excess and untimely rains. This calls for investing more in research focused on interaction between meteorological and agronomy/cropping systems, besides real-time dissemination of weather and climate information to farmers and market agents. There is also need for reforms that enable agro-processors to procure directly from farmers, as opposed to the present intermediary-dominated system that keeps markets segmented. A single national market where produce and information can flow freely will allow supply-demand imbalances – including those resulting from weather disruptions – to correct faster across time and space. While agriculture will remain a ‘gamble’ with nature, we can still reduce some of the risks.

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