El Nino affect to impact India's economy and agriculture

New Delhi: Another unexpected development that will weigh on the economy and is likely to have a ripple effect on the stock markets, is that El Nino is in place heading into winter for the first time in four years, driving the outlook for warmer-than-average temperatures for the northern hemisphere.

The US’s National Oceanic and Atmospheric Administration's (NOAA) Winter Outlook report released on Friday confirmed the development of the El Nino for the winter months.

Earlier this month NOAA said the Northern Hemisphere may experience a "strong" El Nino in 2024 with a 1 in 3 chance of it being "historically strong" (Super El Nino).

The disruption in the weather pattern triggered by the El Nino phenomenon has implications for many industries and sectors of the economy, from energy producers to commodities markets to agricultural interests and tourism.

The impact of the super El Nino on countries of the northern hemisphere would also hit global trade which would impact India’s exports as well since the USA and Europe, are its biggest trading partners. Any decline in exports will hurt both the manufacturing sector as well as services exports such as IT software.

India’s agriculture sector has already taken a hit from a southwest monsoon that was both erratic and fell short of its normal level in an El Nino year.

This resulted in both damage to standing crops as well as a reduction in the sown area under key crops such as pulses and oilseeds this year since more than half of the country’s farm area depends on the rains for raising crops. This could spell more trouble ahead as recourse may now have to be taken to expensive imports to fill the gap and keep prices in check.

The area under cultivation of pulses has shrunk by close to 9% while the acreage under sunflower has plunged by as much as 65% due to deficient rains. Around 8.68 lakh hectare crop area across states is reported to have been affected by floods or heavy rainfall this year.

The monsoon had got off to a delayed start in June after which there was excess rain in July followed by a deficit in August and then excess rains in September again in certain parts of the country, such as Punjab and Haryana, which hit the standing crop. This had resulted in a sharp increase in the prices of vegetables, especially tomatoes and onions that triggered a spike in inflation and stretched household budgets.

The erosion in farmers' incomes has had a cascading effect on industry as well since the demand for tractors sold by companies such as Mahindra & Mahindra and two-wheelers marketed by auto majors like Hero MotoCorp and Bajaj has come down which is reflected in the falling monthly sales numbers in recent months.

Rising prices of rice, wheat, pulses and spices have emerged as a cause for concern. The latest figures for retail inflation show that although food inflation has come down to 6.56% in September due to the cooling down of vegetable prices and cooking oil, the prices of pulses went up 16.38% while those of spices rose 23.06% during the month. The prices of cereals went up 10.95%.

Another crucial factor weighing on the farm sector going ahead is the amount of water that is currently available in the country’s reservoirs across states.

About 80% of India’s rainfall comes during the southwest monsoon which also fills up the country’s reservoirs that are used for irrigation during the next agricultural season. With the deficient rainfall this year, the water storage in the reservoir is reported to be around 75% of last year which could impact agricultural output in the forthcoming rabi season especially if the weather turns out to be drier and hotter due to the super El Nino.

The intensity of the El Nino weather phenomenon depends on complex oceanic and atmospheric conditions, and the NOAA plans to update its predictions in November based on the latest data.