Drought: The biggest challenge before government

As of now, according to the Union finance minister, the cumulative deficiency in the south-west monsoons is around 26 per cent. Already, nearly half of the country has been officially dec

lared as drought-affected. Even if late rains make up some of the deficiency, already the Kharif sowing season is over in most areas and the sown seedlings have dried up.

However, there are a few redeeming factors. First, nearly 70 per cent of wheat production and 30 per cent of rice production come from the irrigated areas in Punjab and Haryana. This production would be largely unaffected by the bad monsoons. Second, currently the total food grains stocks are 57 million tonnes which are 16 per cent higher than the last year. These are substantially above the mandated buffer stock requirements. Hence, the government can afford to offload from these buffer stocks to smooth out the shortfall in food production. Third, our foreign exchange reserves are $270 billion which again is a lot more than the precautionary needs of the economy. So, food grains can now be imported freely, as needed.

But then, already the international price of rice has started to move up in anticipation of increased imports by India in the coming months. Along with the rise in the price of rice (by 16 per cent over the period April 04 to Aug 08) the price of pulses (major source of protein for poor people) and vegetables (major source of vitamins) have already gone up by 18 per cent and 40 per cent, respectively, over the same period.

So, even if the total supply of food grains in the Indian market can be maintained by imports and offloading of buffer stocks, the prices of food items will move up, leading to significant rise in the inflation rate. Further, the official inflation rate which is currently (laughably) negative (mainly because of the fall in petroleum prices compared to the same period last year) refers to year-on-year WPI which gives a much lower weightage to food prices than the CPI. Inevitably, the WPI will be higher and the CPI would be even higher in the coming months as a result of the further spurt in food prices.

How about the GDP growth rate? Here the changing composition of GDP may come to the rescue. Currently, agriculture accounts for only 17 per cent of GDP. So even a minus 2 per cent growth in agriculture would cause a less than 0.5 per cent fall in the overall growth rate of GDP. Of course, the GDP growth rate would be otherwise lower because of the continuing slowdown in export growth, the impact on demand for manufactured goods due to the fall in rural incomes and the slowdown in investment expenditure.

So, the major concern would not be the GDP growth rate. Even a 5 per cent growth in the midst of a global recession is a good enough achievement. The real cause for worry is what would happen to people engaged in agriculture (60 per cent of population). Though the rise in prices of food grains, pulses, oilseeds and vegetables would partially offset the fall in income due to the fall in output for some farmers, the marginal farmers and landless labour who buy food grains from the market would be the hardest hit for two reasons. They will have to buy food at higher prices while suffering a loss of jobs and income.

Already, there are reports of suicide cases from indebted farmers facing a crop failure as well cattle deaths due to shortage of fodder. No doubt, such cases would mount in the months to come.

Regarding mitigating steps, in addition to offloading from FCI stocks and liberal imports, the government will have to go for rescheduling of existing loans, additional crop loans and possibly loan waivers. More food subsidies, specially for BPL families, and additional subsidies on seeds, cattle fodder and diesel (for running pump sets) would inevitably form components of the relief package.

Advancing sowing operations to take advantage of the soil moisture due to (hopefully) belated rainfall is also being talked about. Most of all, the National Rural Employment Guarantee Scheme (NREGS) will have to be pursued more widely and vigorously to provide jobs to the rising number of jobless farmers and landless labour.

The success of these programmes in alleviating the distress of the people will, of course, depend on the effectiveness of the implementation machinery at the state, district and local levels. Many cases of people with NREGS cards but no work opportunities have been reported in the media.

All these will add to government’s budgetary deficits which have already reached alarming levels due to the several rounds of stimulus packages to moderate the effects of global recession along with a fall in tax revenues thanks to the slowing economy. But the additional fiscal risks will have to be taken as no democratic government can afford to ignore so much of human misery.

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