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Drought-proofing India PDF Print E-mail
Monday, 28 April 2014 01:00
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R40,000 cr on MGNREGA vs R12,500 cr on irrigation

Given the Met’s disastrous track record in predicting the impact of El Nino events—the first projection in 2009 was of a rainfall level of 96% of the long-period average against the actual levels of just 77%—its initial projections of a 23% probability of deficient rains are scary; more so since, apart from talking of a 60% probability of El Nino conditions building up, it also gives a 33% probability to a ‘below normal’ monsoon. Even so, given that every El Nino year has not been a drought year—though every drought year has been an El Nino one—it is sensible to wait till June when firmer details will be available. Also, given agriculture’s falling share in GDP, the reducing share of kharif crops—down to 50% now—in agriculture GDP as well as the fact that the northern belt is largely irrigated, the impact on overall growth will be muted. Of course, given the depressed growth in both industry and services, a 2009-type drought could easily knock off 40-50 bps from growth, taking FY15’s to sub-5% levels.

More than the impact on GDP, however, is the likely impact on inflation—in which case, whatever chances there are of an interest rate cut later this year will quickly evaporate. Which is why, as early as possible, the government needs to come out with a series of announcements/measures to mitigate the role of inflationary expectations. Given the excessive stocks of cereals, a policy of offloading these on to the open market, and a schedule for implementing it, could be drawn up and made public to bring down the 10%-plus levels of inflation to near zero. Given that cereals have a 14.5% weight in the CPI, this is an important step. Equally important, apart from the policy—reported in FE last week—of stepping up the distribution of short-duration seeds and other such measures, it would be important to immediately bring down import duties on edible oils to zero. For farmers, whose suffering cannot be quantified in terms of the fall in GDP or agricultural growth, it is important to come out with a system to ensure drought compensation is released immediately. Instead of teams going out to inspect the crop damage, a more sensible solution is to draw up norms for compensation related to the levels of rainfall in various rainfall areas—and just distribute these funds at the earliest. Creation of an income stabilisation fund at the earliest is probably a good idea—farm insurance, too, is a good idea, but the world over, given the risks involved in farming, most of the insurance premiums have to be paid by the government anyway.

Given how over R3 lakh crore is required for incomplete irrigation projects, it is important to get Parliament to take a call on the subsidies-versus-irrigation question. Right now, India spends around R40,000 crore annually on just MGNREGS, R60,000 crore on fertiliser subsidy versus around R12,500 crore on irrigation. If the question of drought-proofing India is put to Parliament in this context—more so, if you keep in mind how much of fertiliser subsidy actually reaches poor farmers —it is likely there will be a bigger push for creating the necessary irrigation facilities.

 

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