The onset of the monsoon has revi-ved interest about the likely impact on the economy. The last two years were poor rainfall years, but the current forecast is that is that the current year will see normal, if not better, rainfall.
The general expectation is that this normalcy in rains would act as a growth booster across sectors dependent on monsoon-driven rural demand especially agriculture and allied sector, two wheelers and tractors, the fast moving consumer goods and also benefit financial players catering to the rural areas.
A recent Crisil report has brought out that a good monsoon would help rein in food inflation which hit significant highs during the last 8-9 months, averaging around 5% after the 2% levels experienced in July-August last year. A Greenpeace report had brought out that thermal power plants had recently closed down due to water shortage. There were reports of shutdown of some manufacturing plants, like the PTA plant of Reliance due to water scarcity. Such water-sensitive industry will also stand to benefit from good monsoon.
As a contrast to all this, in case the rains are ‘above’ normal, or bunched instead of being well spread out, then one could also re-witness the age old rain damage/flood impact stories in the media. The net impact on the economy would accordingly be the ‘net’ of the above positives and possible negatives.
There is huge anxiety regarding the rains. This is much higher than in other countries. It is not that dry spells do not cause stress elsewhere. Stories regarding increase in frequency of forest fires in USA and elsewhere or municipal water shortages in Brazil due to unusually prolonged dry spells etc, do appear. But it is rare to witness the annual, generalised, feeling of national anxiety, common in India, elsewhere.
Why is this so? It is frequently stated that we are a predominantly agriculture-oriented economy. In terms of sheer size, our agriculture system is amongst the world’s largest, accounting for 7.6% of global output, lagging only USA and China. Arable land in India is 158 million hectares as against 163 million and 110 million for USA and China, respectively. However, in terms of GDP, agriculture’s share is only about 18%, higher admitted-ly than world average of 6% but not much different from the relative sectoral shares in other emerging market economies.
As far as rain dependence goes, India is again not exceptional. India gets an average precipitation (rain plus snowfall etc) of about 1080 mm – somewhat more than the world average. Bangladesh gets twice as much as India, but USA at 715, China 645, Pakistan 494 get much less. ‘Variations’ around the ‘mean’ happen in all geographies. It is sometimes said that we have not ‘protected’ our agriculture as well as other countries.
Adequacy of irrigation is often debated. While there could be scope for improvement, currently India has about 36% irrigation coverage as against 10 %-5.5 % for China and USA, respectively. The actual problem thus lies elsewhere.
Using less water
In terms of water consumed, India usage is documented at 761 cubic kilometres (91% usage by agriculture and 2% by industry). China uses 554 cubic kilometres (77% is for agriculture and 18% for industry). The USA uses even lesser water. More importantly, Indian usage is growing faster than agricultural productivity while in several countries, absolute reductions in usage is being obtained.
One of the aspects underlying policy has been the governmental, as also political desire to ‘help’ the Indian farmer. All states as also political parties vie in this. However, as a revealed behaviour, this assistance is seen to occur by way of inducing distortions in the price signals by subsidising some inputs (free water/ power/ fertiliser) or by announcement of ever rising state-supported ‘minimum prices’ – but only for some crops. Subsidy induced crop diversion/input preference has often occurred.
The fiscal cost implications being enormous, this headline- focussed populism has been accompanied by a graduated decline in state extension services (over 95,000 vacancies), insufficient attention towards maintenance of rural infrastructure (water bodies, roads, storage etc) and erratic availability of power.
Reports regarding excess water withdrawal due to pumps left ‘on’ all night, excess production induced crop wastages, rising soil salinity due to excess fertiliser use are common. The resultant low productivity/high post-harvest loss matrix (India lags international levels in most crops) has created a persistent shortage-anxiety syndrome necessitating restrictions in the farmer’s ability to market and secure price hedges from the market or even source new seeds.
As inefficiencies are not challenged but condoned, we often find ourselves being price uncompetitive internationally despite agriculture being supposedly a labour-intensive sector and a relatively low wage structure (in relation to peer group countries). Export subsidies are thus often found necessary. We concurrently experience continued water stress despite having better than inter country average rainfall. Also, the size of the rural landless is reported at over 300 million-almost 50% of the rural population.
A large majority of the land-owning farmers operate with sub-marginal farm holdings. It is a moot point whether these groups benefit from the above class of subsidies or benefit more if the same funds are used to transit to a higher productivity environment generating increased rural activity and jobs.
The current monsoon season, as mentioned, is forecast to be much better than the previous couple of years. Usually good rains also result in cooler temperatures. It could be worthwhile if, in this probably cooler clime, dispassionate analysts/experts/activists could assist in securing societal re-evaluation about whether it would be socially desirable to secure graduated repositioning/redirection of existing subsidies towards water and/or yield efficient technologies and practices while simultaneously disincentivising water guzzler activities. It could perhaps also prevent future judicial fears about water famine leading to cancellation of pre-monsoon cricket matches.
(The writer is former chairman, Exim Bank of India)