What is El Nino?

El Nino is a weather phenomenon caused by the warming of the Pacific Ocean surface along the South American coast. This causes a disruption in the usual trade winds, which results in a shift of rain clouds from the western Pacific to the eastern Pacific.

This atmospheric disturbance leads to a rise in sea surface temperature and triggers a chain of weather patterns such as droughts, wildfires, and floods in different regions around the world. El Nino is known for causing severe and unpredictable abnormalities in weather patterns throughout the globe.

The impact of El Nino on weather patterns can vary from region to region. Some areas experience severe droughts leading to crop failures and famine. While in other areas, El Nino brings about increased rainfall, causing floods and landslides.

El Nino affects not only the weather but also the economy of countries worldwide. Severe El Nino events can cause significant economic disruptions and financial losses.

In the next section, let’s look at the history of El Nino and its impact on the Indian economy.

History of El Nino in India

India has experienced five El Nino events since 1950, with the most recent occurring in 2015. The impact of El Nino events on the Indian economy has been varied. The event in 2009 caused a significant decline in rice and wheat production, leading to a rise in food prices. Similarly, the 2015 event resulted in a massive drought, which affected India’s agricultural sector, leading to a drop in GDP growth rate.

Although the impact of El Nino on India’s economy has been negative, the country has also witnessed some positives. For example, reduced rainfall during El Nino events has prevented floods, which have caused significant damage to the country in the past.

Effects of below-average rains on Indian economy:

The implications of El Nino on India’s economy will depend on how much rainfall is affected. Agriculture is a sector most affected by below-average rains, leading to reduced crop yields, which can increase food prices. The hydroelectric power generation and manufacturing and service sectors are also likely to be adversely affected. Overall, the Indian economy is expected to suffer due to the negative impact of El Nino.

Measures taken by the Indian Government to mitigate effects of El Nino:

In the past, the Indian government has taken numerous measures to counteract the impact of El Nino on the Indian economy. For instance, the government has increased spending on agricultural research and implemented drought-resistant agricultural techniques. However, the success of these measures has been mixed, and more needs to be done to mitigate the impact of El Nino on India’s economy.

Nomura’s Analysis of El Nino Impact on Indian Economy

Nomura economists have predicted that if a severe El Nino event occurs in FY24, India’s economic growth rate is likely to dip to 5.5%, down from 7.2% the previous year. The expected decline in growth rate can be attributed to below-average rains leading to lower agricultural output, which constitutes a significant part of India’s GDP. Inflation is also expected to rise by 0.3%, with net food exports impacting India’s inflation rates more significantly than those of its neighboring countries.

Factors contributing to the decline in growth rate:

The dip in growth rate is expected due to the shortfall in agriculture production, which constitutes around 15-20% of India’s GDP. A below-average rainfall has a cascading impact on agriculture and allied industries, leading to lower earnings and lower spending by farmers and households. A decline in spending leads to lower growth rate in other sectors as well, including manufacturing and services.

Impact of El Nino on India’s inflation rate:

India is a net food exporter, exporting large quantities of rice, wheat, and other food items to various countries. Any disruption in the food production cycle due to El Nino can lead to a sharp increase in food prices, putting a severe strain on India’s vulnerable population. The rise in food prices can have a ripple effect on other sectors, leading to inflationary pressures.

The Way Forward:

The Indian government has learned several lessons from past El Nino events and has taken proactive measures to mitigate the effects of possible future El Nino events. The government has increased its investment in water storage facilities, which will reduce the impact of reduced rainfall. The government has also increased its investment in irrigation projects, which will enable farmers to reduce their dependence on rainfall. Further, the government has launched several crop insurance schemes to shield farmers from crop failure.

Effects of below-average rains on Indian economy:

India is an agriculture-based country, where 60% of the population is employed in the agricultural sector. In the event of below-average rainfall due to a severe El Nino, the impact on agriculture and food production is likely to be severe. Crops like rice, wheat, corn, and sugarcane require an adequate amount of water for optimal growth, and a lack of rainfall could cause drought-like situations, leading to crop failure.

When it comes to food production, India is self-sufficient in terms of supplying its needs domestically. However, in the event of a drought-like situation, food production could get adversely affected, leading to high prices and inflation. Lower rainfall could also impact the soil quality, leaving it dry and infertile for cultivation, leading to long-term damage to agricultural outputs.

In addition to lower agricultural productivity, hydroelectricity generation could also be affected in the event of below-average rainfall. Hydroelectricity plants need a constant supply of water to generate electricity. In the event of lower rainfall, plants will be forced to shut down, leading to power shortages. Shortages, in turn, would result in a significant impact on the manufacturing and service sectors, which depend on uninterrupted power supplies. A shortage of power can lead to production delays, stalling of work, and eventually impact the economy due to lowered productivity.

Apart from hydroelectricity and agriculture, rainfall is also essential for maintaining a healthy ecosystem. Forests and other forms of vegetation rely solely on water for survival. Lower amounts of rainfall could kill plants, trees, and wildlife, leading to ecological imbalances. This, in turn, can lead to natural disaster risks like landslides and soil erosion and the financial burden of cleaning up the aftermath.

Measures taken by the Indian Government to mitigate effects of El Nino

The Government of India has taken a number of initiatives to counter the negative impact of El Nino on the country’s economy and agriculture. One major step was the implementation of the “Pradhan Mantri Fasal Bima Yojana” (Prime Minister’s Crop Insurance Scheme), which provides financial protection to farmers in case of crop losses due to natural calamities, including droughts caused by El Nino. Under this scheme, farmers receive a compensatory amount for their lost crops, providing them with much-needed relief during lean periods.

Another measure taken by the government is the promotion of crop diversification to help farmers switch to crops that are more resistant to El Nino’s effects, such as drought-tolerant crops and high-yielding varieties. This initiative has helped farmers across the country to remain productive even during times of severe climate change.

In addition, the Indian government has focused on increasing investments in irrigation and rainwater harvesting projects to ensure adequate water supply in drought-prone areas. A loan of INR 6,000 crore has been sanctioned under the Micro Irrigation Fund to help farmers adopt micro-irrigation methods like drip and sprinkler irrigation. These methods help conserve water and eliminate water wastage, ensuring that farmers remain productive even during dry spells caused by El Nino.

Whilst these measures are commendable, they have not been implemented flawlessly and may have some shortcomings. Despite the introduction of crop insurance schemes, the compensation process for farmers has been slow and irregular. Similarly, some farmers have been hesitant to switch to different crops due to lack of awareness or infrastructure support. Furthermore, some irrigation and rainwater harvesting projects have been delayed or under-financed, hindering their effectiveness.

Conclusion:

El Nino poses significant challenges to India’s economy and agriculture, and the Indian Government’s efforts to mitigate its effects are commendable. While the government has initiated a number of measures to address these challenges, some significant shortcomings still need to be addressed.

Policy-makers need to continue collaborating with farmers, scientists, and other stakeholders to develop sustainable solutions that are effective in various regions across the country. By doing so, India can better prepare itself for future El Nino events, reduce its impact on the economy and ensure that farmers do not suffer due to circumstances beyond their control.

It’s important to note that we must be alert to the effects of climate change on our planet, as El Nino is one of the many examples of the changes that are happening. So, we must buckle up and prepare ourselves for more such natural occurrences in the future and take collective actions to mitigate their impact.

Disclaimer: The views expressed in this blog are for educational purposes only. This is not professional advice. Consult your financial advisor before investing.