FinMins and the petitions to rain god

“The food position still continues to cause anxiety and conditions have definitely become worse... following the failure of the monsoon. Steps are being taken to make additional supplies available, but the position is bound to be difficult until the new harvest comes on the market,” finance minister RK Shanmukham Chetty said in independent India’s first full Budget speech on February 28, 1948.

In the 71 years since Chetty’s speech, India has moved from bullock carts to tractors, plans for bullet trains and nuclear energy. But the spectre of monsoons upsetting the budget arithmetic and economic policy calculus remains just as it was back then.

Even after gradually shaking off the horrors and deprivation brought on by the Partition and World War II, newly-independent India remained heavily dependent on food imports. Policymaking was largely driven by fears of food shortages, runaway prices and the need for foreign exchange reserves to pay for imports.

Green revolution during the 1960s brought some measure of food security and the country today exports agri-commodities, but the fear of delayed or deficient monsoons still stalks finance ministers.

“The three challenges… I had outlined in my last Budget Speech remain relevant, even today. These would continue to engage the Indian policy-planners for the next few years. The first challenge before us is to quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the ‘double digit growth barrier’... In this endeavour, I seek Lord Indra’s help to make the recovery more broad-based in the coming months,” finance minister Pranab Mukherjee petitioned the rain god in his Budget speech in 2010.

Monsoons account for over 70 per cent of the total annual rainfall. While the farm sector accounts for just 16 per cent of the GDP, nearly half the working population of about 800 million Indians still rely on agriculture for a living. Irrigation is available to less than half of the farmland, leaving a significant chunk of the population completely dependent on the monsoon. “In the 1960s, less than 20 per cent of agriculture was irrigated; today this number is in the mid-40s,” noted the Economic Survey 2018.

The average annual rainfall is about 1,170mm, according to the Union ministry of water resources. The monsoon in any year is considered ‘normal’ if it delivers in the June-September season anything between 96 and 104 per cent of a 50-year average of 89 cm and covers the entire country by mid-July. The geographical distribution of the rainfall influences the farm output region by region.

The monsoon’s onset in June leads to the cultivation of rain-fed kharif crops, which accounts for half of the country’s annual food output. Rice, corn, pulses, sugar cane and oilseeds such as soybeans are grown during this period.

If this rain falls short, the crop yields less and food prices spiral; reservoirs become depleted and the fall in hydropower generation hits factory output. The inflation in food prices, in turn, affects the interest rates set by the RBI.

A sub-normal monsoon leading to drought requires the government to provide farmers with financial support, and together with the increase in food imports the fiscal deficit can widen. “In a year when rainfall levels were 100 millimetres less than average, farmer incomes would fall by 15 per cent during kharif and by 7 per cent during the rabi season,” according to the Survey.

A good monsoon and a bumper harvest, therefore, help control food prices, which account for half of the consumer price index — a measure of the change in the retail prices of a fixed basket of household goods and services. The increase in rural incomes tends to boost rural demand for the goods and services produced by a variety of industries, including construction materials, fast-moving consumer goods, tractors, passenger cars and two-wheelers.

Thus, the monsoons have a ripple effect on the non-farm economy and the overall GDP growth rate. If a good monsoon is similar to a tax cut or demand boost, a poor monsoon becomes inflationary as well as demand-reducing. No finance minister can really prepare in advance for, or totally defy the economic impulses set off by it.

After successive drought years in 2014 and 2015, 2016 offered respite with normal rainfall. In 2017, rainfall was near-normal but again dropped below normal last year, pushing several states — including Maharashtra, Andhra Pradesh, Jharkhand, Karnataka, Gujarat, Telangana, Rajasthan and Madhya Pradesh — into drought.

One reason agencies such as India Ratings and Research have revised downwards the GDP growth forecasts for 2019-20 is the expectation of lower-than-normal monsoon. The official weather forecaster, Indian Meteorological Department, expects the monsoon to be near-normal, but private weather forecaster Skymet Weather Services predicts it could be below normal.

Last week, the Muzrai Department of Karnataka government directed temples under its jurisdiction to conduct rituals to invoke the blessings of the Hindu rain god. Rituals such as frog-and-donkey weddings are being performed elsewhere in the hope of getting the heavens to open up. No one will be surprised if the FM, too, joins in the prayers in her Budget speech. It will merely be in keeping with a long-held tradition.

Puja Mehra is a Delhi-based journalist and author of The Lost Decade (2008-18): How India’s Growth Story Devolved into Growth Without a Story