El Nino may impact India's GDP by 1.75%: Assocham

The deficit rainfall of 5 per cent, due to the El Nino factor will impact the GDP by about 1.75 per cent or Rs.1,80,000 crore, hurting the lakhs jobs in unskilled sectors, industry body Assocham said today, while announcing the results of a study.

Assocham says according to estimates a rise in agriculture by one unit was likely to raise demand for industrial goods by 0.47 and services by 0.12 units, and a 0.35 per ent fall in GDP for every one per cent deficiency in the average rainfall.

According to Assocham president Rana Kapoor, the news of drought hitting the economy owing to El Nino factor, ''prima facie is a matter of grave concern''. 

A good harvest results in increased demand for industrial products. Also, good agricultural performance is a must for India to raise demand for services like trade, transport, banking and insurance services, he added.

On the supply side, agricultural inputs are used in the production of various chemical and pharmaceutical products; consumer items, especially non-durable food products, etc.

Agriculture also provides industry with inputs such as grains for processed foods, sugarcane for the sugar industry, oilseeds for edible oil industry, cotton for textile industry and so on, Kapoor said.
 
Since about 30 per ent of the manufacturing sector is agriculture-based, a bumper crop ensures the supply of raw material for industry at relatively lower prices. To add to this, about 60 per ent of net sown area of the country is rain-fed.

The second major implication of the country facing drought is the food inflation, particularly for vegetable oils and pulses.

A high rise in the prices of food articles has always been a concern to the policy makers in India, more so during recent years when inflation  averaged 10 per cent during 2008-09 to December 2012.

Given that for an average household in India food accounts for almost half of its expenditure, while a poor household spends a  still higher share on food, prolonged spell of high food inflation would create havoc with personal finances.

High food costs inflicts a strong 'hidden tax' on the poor, the industry body said.

However, on the other side, the projections of monsoons do not point to a very high probability of a drought in 2014-15, it added. 

Kapoor added that past experience indicates that in 2000, 2005 and 2009, agricultural GDP rose despite rains being significantly below average. Also, all El Nino years have not resulted in a drought, although all droughts have happened in years of El Nino.

• To forestall the impact of the El Nino factor on the economy, Assocham has submitted to the government a 12-point strategy to contain a drought-like situation.
• The government must expand the farm insurance cover and advise banks and financial institutions to settle crop insurance claims in the drought-hit areas on an immediate basis.
• High quality seeds of alternate crops must be distributed among farmers in the drought-affected areas. The minimum support prices (MSP) of alternative crops to be cultivated in drought-hit areas need to be attractive.
• Government must realistically assess the ground level situation in order to estimate the shortfall of oil-seeds and pulses and help the traders with market intelligence.
• Bring down the cereal inflation by liquidating the extra stock that the government is keeping over and above the buffer requirements.
• For controlling the prices of fruits, which attract 30 per cent import duty, bringing down the import duties prices of fruits in the domestic market, would help control prices.
• Scrap the APMC Act and allow a free flow of agriculture goods across states. This would help bridge the mismatch of demand and supply of goods which is the main underlying factor of inflation.
• Prevent hoarding and curb speculation. As in the past, imposing stock limits on various agriculture commodities like sugar, pulses, onions, paddy and edible oils to control the rising prices would help prevent hoarding.
• Also, the Forward Markets Commission (FMC) must keep a close watch on key agricultural commodities to curb possible speculation and price increase in the backdrop of poor monsoon. These measures need to be continued till there is improved supply and higher production.
• Ensure distribution of pulses through public channels at subsidised prices as was done in 2008 to all the households.
• Creating Relief Employment Programmes: As drought directly affects all those dependent on agriculture in terms of both income and employment, drought management must essentially aim at creation of new employment avenues.
• Governments, both local and the centre, must partner to prepare for relief employment programmes in the affected areas. The convergence of various existing employment schemes is a must for better drought management.
• Preparing alternative cropping plan and providing financial and technical help for the farmers is required. Ensuring the availability of seeds and other inputs as well as creating awareness among farmers needs to be a plan component. Also, the government must provide buyback agreements for these crops thus raised.
• Fuel subsidy that enables farmers to provide supplementary / alternative irrigation through pump sets in the drought and deficient rainfall areas to protect the standing crops needs to be announced. Emphasis must be put to provide quality power for agriculture in drought hit areas.
• Initiate the structural and institutional reforms in agriculture. Facilitating private investments in agriculture and farmer-producer organisations would boost the supply response in agriculture and save on large wastages in the supply chains. Tap the unexploited irrigation potential.