(This blog post was originally prepared in “five minutes script template” for the External Services Division of All India Radio, Ministry of Information and Broadcasting, Government of India. Broadcast on October 8th, 2018, All Units. http://airworldservice.org/)
In India, 70 per cent of annual rainfall is received in four months – June, July, August and September. As the rural economy is predominantly monsoon-dependent, any deviation from normal rainfall has repercussions on the rural economy. Official statistics show that in India, agriculture accounts for 16 per cent of GDP and contributes 49 per cent of employment.
A good monsoon is crucial for the rural economy as it not only is significant for Kharif crops, but also for ‘Rabi’ crops by replenishing the underground water. An important prelude to double the income of farmers is to trigger the growth of agriculture sector. The timely arrival and “even” distribution of monsoon rains is crucial for the growth of agriculture sector.
A clarion call for State Governments to initiate Climate Responsive Budgeting
The impact of monsoon rains across States has been heterogeneous this year. The South Indian State, Kerala, has faced severe floods. Cloudbursts and landslides have also been reported in Himachal Pradesh, Uttarakhand and Jammu Kashmir. Given the divergent effects of monsoons on climate change, it is high time that the State governments in India initiate “Climate-responsive Budgeting”, integrating the rainfall empirics as one component, in their annual budget documents, and track the impact of monsoon on the rural economy.
The Inter-Governmental Panel on Climate Change (IPCC) predicted that in the absence of any adaptation by farmers to “climate change” - in the absence of ‘even” rainfall - across regions in India, the farm incomes will be significantly lower than the average in the coming years. This points to the significance of monsoon in rural economy of India, which is predominantly rain-fed.
When tacking food inflation is beyond the Central Bank’s targeting rules
Any deviation of monsoon rains from normal rainfall can lead to “food inflation”. The major Kharif crops include paddy, maize, millets, cotton, sugarcane and protein-rich pulses, which are predominantly rain-fed. Inflation targeting framework by Reserve Bank of India (RBI) is crucial for containing inflation in India through altering repo rates through the decision of Monetary Policy Committee (MPC). However, supply side determinants of inflation - like rainfall - is equally significant in manoeuvring the “food inflation” dynamics in India.
Sixty five per cent of the net sown area in India still constitute “rain-fed” crops.
The impact of rainfall has been highly divergent between irrigated and unirrigated areas in India. The districts where “less than 50 percent of cropped area is irrigated” is categorized as “unirrigated area”. The recent Economic Survey noted that unirrigated areas are dependent on rainfall almost twice as high as the irrigated land. Within irrigated land, some crops are significantly dependent on rainfall. In India, statistics shows that 65 per cent of the net sown area constitutes rain fed crops. ‘Kharif’ crops are grown in this period and they are heavily dependent on monsoon rains.
The agrarian distress in India is real and the Government of India has announced packages to deal with the agrarian distress. Though the Government has announced Minimum Support Price (MSP) for 14 major Kharif crops, monsoon rain is crucial for the productivity of the agriculture sector. The farm loan waiver policies of the certain State Governments are closely correlated to monsoons as a good monsoon can lessen the farmer’s debt burden and ease his repayment. A good monsoon triggers rural consumption and it can have positive spill-overs in other sectors like manufacturing and services through multiplier effects.
Fiscal packages to deal with agrarian distress and the political economy
Apart from MSP announcements, the Indian government has designed several schemes including rural infrastructure spending, viz., PMGSY (Pradhan Mantri Gram Sadak Yojana) and a major financial programme, viz., Jan Dhan Yojana, to catalyse the rural economy. However, along with the public expenditure packages in the rural sector, a good monsoon is crucial, for the agricultural sector to grow at higher rate and in turn double the farmer’s income by 2020.
As India moves into election year, the political economy of good monsoon is crucial with regard to containing food inflation and trigger the rural economy. The rural economy is expected to positively benefit from a good monsoon this year, though we cannot ignore the severe natural calamities in a few States of India. The steps by the Indian Finance Ministry to introduce a calamity tax or a cess to finance the restructuring programmes of the States devastated through natural calamities is a welcome step. A committee has been constituted by the GST Council to look into the issue of calamity tax/cess and they are expected to submit their report by October 31st 2018, It was also published on Financial Express October 17, 2018.
Script: Dr. Lekha Chakraborty, Associate Professor, National Institute of Public Finance & Policy.
The author is Associate Professor, NIPFP. Click here for detailed profile.
The views expressed in the post are those of the author only. No responsibility for them should be attributed to NIPFP.