Will El Niño Weaken India’s Economy

Why in the News?

India’s monsoon has opened with a 40% rainfall deficit in June, and the India Meteorological Department has forecast a second consecutive below-normal month in July. The forecast has revived concern that a potential “super” El Niño could damage agricultural output, rural income, and food prices. India enters this season on the back of record 2024-25 foodgrain output, which is what a poor monsoon now puts at risk.

How does a weak monsoon transmit into the broader economy beyond agriculture?

1. Three transmission channels: A weak monsoon damages the economy through lower agricultural output, reduced rural income, and rising food prices.
2. Cropping pattern shift: Farmers are shifting toward pulses and away from maize and vegetables. Pulses need less water and cost less to cultivate.
3. Irrigation-linked decision-making: Planting decisions also depend on irrigation access, MSP levels, procurement support, and market conditions.
4. Rural non-farm contraction: Non-traded rural services such as construction contract when agricultural income falls.
5. Early economic signals: Two-wheeler and tractor sales weaken first. Real estate demand in smaller towns and cities follows.
6. Export exposure: Agriculture exports grew at a CAGR of 8.2% between fiscals 2020 and 2025, contributing 12% of India’s core exports. A weak kharif season threatens this growth.

Why does a weak monsoon strain macro-fiscal and external balances even before the shortfall materialises?

1. Fertiliser subsidy commitment: The Union Cabinet approved a ₹41,533 crore Nutrient-Based Subsidy (NBS: a fixed per-nutrient, rather than per-product, fertiliser subsidy) for phosphatic and potassic fertilisers for the kharif season, covering 28 grades.
2. Import and buffer-stock risk: A shortfall in kharif output will force the government to release buffer stocks and import commodities. This widens the Current Account Deficit (CAD: the gap between a country’s foreign exchange outflows and inflows on the current account) and pressures the rupee.
3. Compounding supply shock: Pest pressure and fertiliser input constraints linked to the Iran conflict are adding to cost pressure ahead of the monsoon outcome.
4. Growth cost estimate: A combined El Niño-plus-drought scenario may shave 20 to 65 basis points off GDP growth, according to Kotak Mutual Fund.
5. RBI’s growth-inflation warning: The Reserve Bank of India’s June bulletin flagged that an adverse south-west monsoon could weigh on the domestic growth-inflation outlook.

Why did the 2009 and 2015 El Niño years produce such different economic outcomes despite similar monsoon failure?

1. El Niño as an imperfect predictor: Six of the eleven below-normal or deficient monsoon years since 2000 were classified as El Niño years by the IMD. Five of these six saw deficient rainfall.
2. 2009-10 outcome: Two consecutive years of rainfall stress, combined with all-India irrigation cover below 45%, contracted crop GVA (Gross Value Added: a sector’s contribution to national output, net of input costs) by 2.5% and 3.2% in fiscals 2009 and 2010. Inflation entered double digits.
3. 2014-15 output impact: El Niño intensified from weak to strong across these two years. Crop GVA contracted again in both years.
4. 2014-15 price impact: Food inflation stayed muted in 2015. This differed sharply from the double-digit inflation of 2009-10.
5. Explanation for the divergence: Proactive food management, restrained MSP hikes, and a global commodity price slump kept 2015 inflation low.
6. What the comparison establishes: Policy response, not rainfall severity alone, determines whether an El Niño year turns into an inflation crisis.

How exposed is India’s irrigation and storage system to a second successive weak monsoon?

1. Vulnerable districts: 315 districts have been flagged as vulnerable to a poor monsoon. Of these, 111 districts across 12 States are of primary concern for poor irrigation facilities.
2. Reservoir storage shortfall: Storage across the 166 reservoirs monitored by the Central Water Commission stood at 47.725 BCM (Billion Cubic Metres) on July 2. This is below both the year-ago level of 78.077 BCM and the normal level of 48.402 BCM for this time of year.
3. Current buffer, limited margin: The present storage position can meet requirements. A second consecutive weak monsoon would strain it.
4. Structural irrigation gap: All-India average irrigation cover remains below 45%, the same constraint that contributed to the 2009-10 GVA contraction.

Should India replace crop insurance with ex-ante risk reduction as its primary drought response?

1. Limits of crop insurance: Crop insurance compensates farmers after a monsoon failure. It does not reduce their underlying exposure to rainfall variability.
2. Ex-ante alternative: Ex-ante risk reduction requires sustained public investment in irrigation infrastructure rather than compensation after the event.
3. Seed access gap: Drought-resistant, high-yielding seed varieties are necessary. Farmers who need them most lack access to them.
4. Investment shortfall: Public investment in irrigation and seed access has been inadequate. This explains why agricultural disaster preparedness remains poor.

Conclusion

A weak monsoon does not automatically translate into an economic crisis. The 2009 and 2015 El Niño years show that policy response, not rainfall alone, determines the scale of the damage. India’s current toolkit remains weighted toward reactive measures, crop insurance, buffer stock release, price management, rather than ex-ante investment in irrigation and drought-resistant seed. Until public investment shifts from compensating farmers after a bad monsoon to reducing their exposure to it, each El Niño year will continue to test the same vulnerabilities: rainfed districts, thin irrigation cover, and reservoirs running below normal.

PYQ Relevance

[UPSC 2023] Discuss the consequences of climate change on the food security in tropical countries.

Linkage: The PYQ assesses the relationship between climate variability, agriculture and food security. El Niño-induced rainfall deficits directly threaten crop production, food security, rural livelihoods and agricultural sustainability, making this PYQ conceptually relevant.