El NiƱo shadows monsoon: CRISIL

Says If the monsoon were to get adversely affected this year, India's economy could grow by 5.2% in 2014-15

If the El Niño weather phenomenon drastically impacts this year’s monsoon as apprehended, it could severely affect economic growth and raise retail inflation in the next financial year, CRISIL Research said in a report issued on Tuesday.

El Niño is a prolonged warming in the Pacific Ocean sea surface temperature, disturbing the formation of clouds; the effect spread worldwide.

Australia’s Bureau of Meteorology and the US Climate Prediction Center have warned of increased chances of the return of an El Niño weather pattern that can trigger drought, hitting production of key crops such as rice, wheat and sugar cane. However, the India Meteorological Department is yet to come out with a prediction on this.

If one comes and it affects the rains, CRISIL said it might have to scale down the India economic growth projection to 5.2 per cent for 2014-15 from the current one of six per cent. Besides, consumer price index-based inflation, with nearly 50 per cent weight on agriculture-related articles, will rise above its current forecast of eight per cent in 2014-15.

In its fight against weak growth and “intolerably high inflation”, the last thing India’s economy needs is a monsoon failure, the report said. The economy grew 4.5 per cent in 2012-13 and is officially projected to expand 4.9 per cent this financial year. However, it grew only 4.6 per cent in the first nine months, raising doubts over the official projections for entire 2013-14.

If the economy does not grow by six per cent in FY15, it would have repercussions on a whole lot of things, including the tax targets set in the interim Budget, which assumed this much of growth, and inflation at 7.3 per cent, to give a nominal gross domestic product (GDP) growth of 13.4 per cent. Nominal GDP growth could still be the same but a slowing in real GDP could affect tax collections.

CRISIL, however, added: “There is a fair degree of uncertainty associated with these early forecasts, so it will be too premature to conclude an El Niño will occur in 2014.”

And, even the occurrence of one does not necessarily imply monsoon failure in India. Since 1991, of the seven times an El Niño was experienced, only two of the years synchronised with a monsoon failure or a drought situation in the country. Past data, therefore, suggests a nearly 30 per cent chance of an El Niño condition morphing into a monsoon failure, CRISIL said.