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Journalism of Courage
With each passing day, assessments of the expected impact of an indifferent monsoon on this year’s agricultural output appear to get more pessimistic. The year began with projected growth rates of agricultural GDP at about zero. Not many people were expecting an increase in production over last year’s high base. Now it seems agricultural growth will fall by about 2 percentage points. With agriculture at one-fourth of GDP, this translates into at least a 0.5 per cent drop in GDP growth directly. In addition, there are linkages through demand, raw materials and prices, that feed from agriculture into manufacturing. With the declining share of agriculture in national income, some of these linkages have become weaker, but they will nonetheless have an adverse impact on the manufacturing sector. If GDP was expected to grow by 6.5 per cent, now the expectation will fall to around 5.5-6 per cent. These numbers will have a negative impact on the investment climate and could dampen growth. Rising inflation, increasing world prices of oil, and higher interest rate expectations in the US will add to our troubles.
This is bad news for the new government. With its focus on rural India, poor performance in agriculture is going to make the government a target of attack regardless of how well the prime minister tracks the drought. India’s capacity in providing relief after a drought might have improved, but the capacity to reduce the impact of such a development on agricultural production and livelihoods has not seen significant change. Many years of the neglect of public investment in irrigation, with resources not being devoted to the maintenance of small irrigation systems, watershed areas, village ponds and reservoirs, have done their damage. The drought is going to significantly upset the finance ministry’s budget calculations. Already the estimates of tax revenue collections in the budget were extremely optimistic, with 40 per cent growth in corporation tax and 25 per cent growth in personal income tax. The impact of the drought is going to be to reduce the tax base and thus tax collections. Further, it will add to the expenditure side by increasing spending on drought relief.
The solution does not lie in short-cuts like free power being offered by some chief ministers. Nor does it lie in pilot programmes for water conservation in select districts offered by the finance minister. A sustained effort needs to be made to revive the large number of water bodies that have been destroyed over the last 50 years. The Planning Commission is expected to come up with a new set of schemes towards this end in the next few months. The approach then should be two-pronged: policy initiatives and infrastructure building for drought-proofing in the long term must keep apace with interventions to alleviate immediate distress.
