'El Nino may impact India's economic growth, inflation'

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SME Times News Bureau | 28 Apr, 2014
According to an HSBC report, an El Nino-induced below normal monsoon this year could have a bearing on India's economic growth and inflation in fiscal year 2014-15, reports media.

"Inflation may remain sticky in the current financial year as a possible El Nino effect on the monsoon is likely to push up food prices and geopolitical uncertainties are likely to pump up global commodity rates," reports media.

El Nino-induced drought poses a 50-75 basis points risk to India's FY 2015 growth forecast of 5.4 percent and could result in a spike in inflation levels to around 8-10 percent, a Bank of America-Merrill Lynch (BofA-ML) report said.

El Nino effect on the monsoon refers to the warmer-than-average sea surface temperature in the central and eastern tropical Pacific Ocean. This condition occurs every 4-12 years and had last impacted India's monsoon in 2009, leading to the worst drought in almost four decades.

An ASSOCHAM study on pulses has cautioned that if El Nino weighs on the Monsoon and rains are deficient, pulses production will get severely hit and affect the households' budget the way onion brought tears to the common-man in the recent past and may give pain to the stomache.

The major pulse-producing states - Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh, Karnataka and Andhra Pradesh, which together account for about 80 percent of the total production may witness less rainfall affecting the output and prices.

The demand-supply mismatch of pulses is causing further pressure on the prices of pulses which may shoot in the near future and therefore, timely precautionary steps need to be taken, the ASSOCHAM recent paper said.

India's pulses production of nearly around 18.60 MMT against the demand 22 MMT in India, has witnessed a very slow growth of mere 4.7 percent (CAGR) in the last five years and the unseasonal rains are also likely to impact the output further this year.

ASSOCHAM President, Rana Kapoor while commenting on the trend said prices in India are dependent upon global production and supply situation in key exporting nations such as Canada, Myanmar, Australia and USA.

"India's large dependence on imports, higher prices and declining per capital availability and consumption of pulses have been matter of concern," adds the ASSOCHAM paper.

Despite the rise in production in last three years, domestic demand will continue to be more than the supplies in coming years. It shows that India is expected to produce around 21 million tonnes (mt) of pulses till 2016, while demand is projected to touch around 23 mt in the next few years, adds the paper.

The production of pulses which is grown in India such as gram, tur, masoor, urad, chick peas, rajma etc has been hovering around 11-15 mt since the late 70s. But, from 2010-11 (July-June) onwards there has been a sharp surge in output and production reached a record 18.24 mt in 2010-11. It continued to remain around 17-18 mt levels in the next few years and is projected to reach almost 18.5-19 mt in 2013-14.

ASSOCHAM believes that improving research and development in pulses to develop more high yielding varieties and focusing more on bringing more pulses growing area under irrigation could be another way out.

India is expected to see below normal monsoon this year with Met department forecasting 95 percent rainfall after a good spell of four years.

India Meteorological Department (IMD) officials said the monsoon is expected to be below normal because of the El-Nino effect, which is generally associated with the warming of ocean water.