Poor monsoon, rising oil price, bigger deficits
Staring at the prospect of a deficit monsoon and the rise in international price of crude oil, the Narendra Modi Government has to begin work on a war-footing to meet the situation. The Indian Meteorological Department has warned that the country is likely to get just 88 per cent of the normal rainfall, which means that large parts will have to be officially declared drought-hit and provided packages for revival. There is unlikely to be a food crisis, though, because there is a healthy amount of food stock available. However, farmers could lose their crops and fall in a deep financial mess. Already, they are reeling from the problems that visited them in recent months due to unseasonal rains and hailstorm.
If the monsoon forecast proves correct — the IMD has said that there is a 66 per cent chance of deficit rains — the agricultural sector is in for a troubled phase. Already, the share of agriculture in the country's gross domestic product has fallen over the years; the current year's projection for the farming sector is possibly in the negative. In 2014-15, it was just 1.1 per cent. Given that the agricultural sector employs nearly 49 per cent of the country's workforce, one can imagine the spiralling impact a poor monsoon can have on the national economy and the livelihoods of millions of people. A vast majority of farmers rely almost entirely on a beneficial monsoon since they do not have access to modern irrigation facilities.
The looming crisis should propel our policymakers to understand the importance of extending irrigation facilities to every nook and corner of rural India. This is where the land acquisition Bill can play a big role. If only the Opposition can give up its obstinacy on the proposed legislation, it will become easier for the Centre and the State Governments to acquire land for establishing modern irrigation projects that can contribute to the growth of agriculture in the country. Of course, mere canals and the availability of water will not solve the issue; quality and sustained power supply is needed to run the pumping stations. Power projects will need transmission and distribution facilities, which in turn can be set up if land is easily available in rural areas.
While these are medium to long term measures, the immediate task is to tackle the rise in crude oil price. The year gone by had been especially helpful to India which imports a large part of its oil requirements. This forms, by an estimate, nearly 34 per cent of the country's total imports. With oil prices falling by almost half last year, the country not just saved precious foreign exchange but also reaped benefits in managing deficits. Some experts have opined that a $10 per barrel fall in price could reduce the current account deficit by some 0.5 per cent of the GDP and the fiscal deficit by 0.1 per cent of the GDP.
This indicates the kind of impact that escalating oil prices can have on the economy. But the most immediate impact of the grim monsoon forecast, added with the Reserve Bank of India's estimate of a lower (7.6 per cent to the earlier 7.8 per cent) GDP growth has been on market sentiments. The stock markets took a tumble on Tuesday. This was aided by the RBI lowering interests only marginally by 25 basis points. Difficult and challenging days are ahead for the Government.