Rain deficit raises fears of drought, says Crisil

Rating agency CRISIL on Monday said an erratic monsoon and severe rain deficiency in the first week of August had raised the fear of drought in the country and might hit economic growth.

It could add to pressure on inflation, especially food inflation, which was already high, it said.

The Reserve Bank of India (RBI), in the first quarter review of the monetary policy, raised inflation estimate to 5 per cent from 4 per cent projected in April 2009.

CRISIL said the overall rainfall deficiency this year was 25 per cent of the long period average, second only to the severe drought year of 2002-03.

The agency measures the impact of deficient rain through the deficient rainfall impact parameter (DRIP), developed in 2002. DRIP is based on the premise that both availability of irrigation and level of precipitation affect crop production.

Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh, Bihar and West Bengal have been hit the most. These six accounted for 47 per cent of the total kharif food grain production and 46 per cent of the total kharif rice production in India, said Dharmakirti Joshi, Principal Economist, CRISIL.

Most of these states have high incidence of rural poverty and high dependence on agriculture. This translates into higher burden on the exchequer to provide relief to these states.

The rice crop has been hit the most. Other affected crops are coarse cereals and pulses, both of which are rain-dependent. For the foodgrain group as a whole, the DRIP score is the highest since 2003.

Referring to the impact on the gross domestic product (GDP), it said while the overall national agriculture was not at risk, as was in 2002, some states faced a grave situation. This would definitely shave off a some part of the country’s GDP, it said. However, it did not provide any estimate of the impact on economic growth.

Goldman Sachs has lifted its growth estimate for India’s economy from 6.6 per cent to 7.8 per cent to for FY2011. It, however, kept the growth expectations for FY 2010 unchanged at 5.8 per cent.

The steady stance for FY 2010 comes on the back of a poor monsoon and its negative impact on rural demand in the near term, taking away the benefit of a recent loosening of financial conditions.