Themes > Current Issues
27.07.2002
Drought: Assessing the Likely Fall-Out
C.P. Chandrasekhar
Halfway through this year's 16-week
monsoon season, the government has been forced to admit that
India faces the prospect of suffering from the "worst and
most widespread drought" in over a decade. With 355 out of
the 512 districts for which data is available having
received deficient, scanty or no rainfall between June 1 and
July 17, even a significant recovery in the monsoon is
unlikely to save this year's kharif crop from some
damage. What is more, the drought seems to be concentrated
in states where agriculture is a major income source and
that are crucial from the point of view of generating
surpluses for deficit states. State-wise data on the
proportion of districts receiving deficient, scanty or no
rainfall, released by the Meteorological Department, put the
figure at 92 per cent of districts in Uttar Pradesh, 93 per
cent in Punjab, 100 per cent each in Haryana and Himachal
Pradesh, 97 per cent in Rajasthan, 85 per cent in
Chattisgarh, 74 per cent in Andhra Pradesh, 69 per cent in
Tamil Nadu, 68 per cent in Orissa and 52 per cent in
Karnataka.
According to estimates released by the Ministry of Agriculture in mid-July, the three crop categories where cultivation has been affected most seriously are kharif coarse cereals, pulses and oilseeds. In the case of coarse cereal the area covered by cultivation was at that point in time only 74.4 lakh hectares, which reflects a 41 per cent drop compared with the corresponding figure for the previous year. Acreage declines have been particularly sharp in maize, jowar and bajra, which are staples for the poor. In pulses the area covered till then was only 18 lakh hectares, compared with the previous year's figure of 30.2 lakh hectares and a "normal" level of 103 lakh hectares. Finally, acreage covered by oilseeds had fallen short of the previous year's level by 51 per cent at 45 lakh hectares. The drop here has been particularly sharp for soyabean from 51 lakh hectares to 18 lakh hectares.
Combined with pessimistic predictions on monsoon recovery over the coming weeks, this evidence should have generated panic under normal circumstances. The government has indeed sat up and expressed concern, driven by the recognition that state elections are around the corner and general elections not too far away. But the response has been late in coming and has been subdued because the government has been lulled into complacency by three factors. First, the consecutive excellent or moderately good monsoons that the country has experienced over the last few years. Given the intensity of the shortfall, when it occurred, during those years and its geographical distribution, this meant little for food security in a country where foodgrain consumption data point to a fall not just in per capita foodgrain consumption but also in overall calorie intake even among the poor. Second, the expectation that even if the intensity and spread of the drought is as bad as in 1987, the fall in production is likely to be less than 10 per cent. Third, the belief that the large stocks of food grains that have accumulated in government godowns, as a result of high procurement and falling offtake, is more than adequate to take care of any such contingency.
In fact, encouraged by the available level of stocks, the government has declared that there is no danger of the drought affecting consumers adversely. The Union Agriculture Minister Mr. Ajit Singh reportedly stated: "There is no dearth of foodgrains or other essential items for the consumer, which can even be imported. It is the farmer who is going to be really hit because he faces loss of income."
The failure to mention the agricultural labourer here is surprising since according to the 55th round of the National Sample Survey on employment relating to 1999-2000, rural households dependent on wage employment in agriculture or other areas amounted to 22 per cent of the total in UP, 33 per cent in Punjab, 26 per cent in Haryana, 22 per cent in Rajasthan, 40 per cent in Madhya Pradesh, 50 per cent in Andhra Pradesh and 45 per cent in Karnataka. Most of these households, which are at the margin of subsistence would be affected by the fall in cultivation associated with a drought in two ways. They would not be able to earn adequate money incomes and they would be squeezed by the likely rise in food prices, particularly for commodities like coarse cereals which they consume.
Given this prospect it is surprising that the policy initiatives announced by the government recently seem to focus only on the farmer. To start with, resources from the Calamity Relief Fund, which was created at the instance of the Eleventh Finance Commission and has at its disposal Rs. 11,000 crore over a five-year period, are to be used for financing relief work. But the nature of such relief work has not been defined. Further, the fact that in a statement to the press the Minister for Agriculture has said that these resources are going to be made available to all farmers in drought hit districts and not just small and marginal farmers is revealing. It fails to mention the agricultural worker whose plight is likely to be severely affected.
Most of the other proposed measures are directly aimed at farmers. Nabard is to be instructed to defer recovery of interest on crop loans, and there is a small probability that interest dues may be waived altogether. Guidelines are to be issued to sugar mills to pay out arrears due to cane growers. And deferred payment of insurance premia under the National Agricultural Insurance Scheme is to be condoned.
The problem is that, besides ignoring the huge proportion of the rural population with limited or no assets, this partial, and yet to be implemented, response fails to engage the three most important bottlenecks to any successful management of the consequences of drought. The first is the inadequate reach of the public distribution system in most states, especially in the rural areas, which makes the sheer task of reaching food to those who would need it daunting. In fact, government policy over the last few years has moved in the direction of diluting the system rather than strengthening and expanding it. As a result the government would have to reach its stocks to the needy through the private trade, which is bound to resort to speculative hoarding, since prices are expected to rise in a situation like this. This makes the presence of large stocks in government godowns an inadequate insurance against both localised shortages as well as price increases.
The second is the fact that the government's stocks do not contain significant amounts of the commodities in whose case the shortfall in output is likely to be the largest. While the availability of large foreign exchange reserves with the government facilitates import of these commodities, this would have to be through the private trade route in the current liberalised trading environment. Here again private speculative activity is bound to drive up prices.
The third is the government's aversion on fiscal grounds to launching a massive food-for-work programme, and therefore its lack of experience in managing such a programme. It is almost common knowledge now that a phenomenon like drought can be devastating not so much because of the lack of access to food supplies but because of the lack of the requisite employment and income that allows people to purchase the food that is available. Over the last few years when evidence was mounting that foodstocks were accumulating in government godowns even while poverty was persisting at relatively high levels and reports of starvation were flowing in from parts of the country, there were many who made a case for using the food surpluses as a means to launch a more extensive food-for-work programme that would provide employment and incomes to the poor as well stimulate demand for an industrial sector which was burdened with excess capacity.
If the government had not ignored these calls on the grounds that it was not a fiscally prudent strategy to adopt, it would have been in a position to quickly respond to the income reduction-induced threat of near famine conditions. Not having responded, however, it would, even if it tries, be hard put to set up and manage such a large exercise in time to avert any significant human damage.
These bottlenecks to dealing effectively with the consequences of drought are already having their impact. Quite early into the monsoon season, expectations of monsoon failure have triggered an increase in the prices of many agricultural commodities, stocks and foreign exchange reserves with the government notwithstanding. To quote one example, in the Mumbai wholesale market, the price of groundnut oil spurted from Rs 420 per 10 kg trading lot on July 6 to Rs 438 by July 13. Refined palmolein gained Rs 17 during the same period to close at Rs 347 and refined soybean oil jumped from Rs 330 to Rs 346 per 10 kg. On July 15, groundnut oil jumped further by Rs 10 to Rs 448 and palmolein by Rs. 11 to Rs 358.
Meanwhile governments in the affected states are sensing the danger of loss of employment among the large mass of workers who are either partially or completely dependent on wage employment for a living. Not surprisingly, they have approached the Centre for a combination of food and cash support for relief and food-for-work programmes. Andhra Pradesh for example has asked for Rs 610 crore by way of financial assistance and 10 lakh tonnes of food grains for the purpose. While a "centre-friendly" state like AP is likely to get a quick response, past experience suggests that Delhi would be far less receptive to demands from many other states, making the rural workers and farmers the victim of cynical political strategies.
Thus, three immediate outcomes are likely, unless the monsoon recovers sharply. First, a decline in farmers' incomes as a result of loss of production and livestock. Second, the loss of agricultural workers' livelihoods as a result of the contraction in rural wage employment. Third, a sharp increase in food prices, as a result of speculation encouraged by the limited reach of the government's public distribution system as a means of reaching food to the poor, especially in the rural areas. Since, for reasons elaborated earlier, the government's efforts to counter these tendencies can only work partially, any further failure of the monsoon can be devastating.
The second-order fall-out of the decline in incomes and rise in food prices would be a sharp erosion in the real purchasing power of a large section of the population and a greater reticence on the part of the government to undertake expenditures that can aggravate the inflation. Both of these are bound to squeeze the demand for manufactures. Thus an intensification of the recession, which already afflicts the industrial sector, could ensue.
Thus the complacence, reflected in official statements, generated by the government's huge food stocks and large foreign exchange reserves is by no means warranted. But such complacence clearly dominates, encouraged by the tendency to see in the drought an opportunity to offload the embarrassingly large stocks of foodgrain in government godowns.
According to estimates released by the Ministry of Agriculture in mid-July, the three crop categories where cultivation has been affected most seriously are kharif coarse cereals, pulses and oilseeds. In the case of coarse cereal the area covered by cultivation was at that point in time only 74.4 lakh hectares, which reflects a 41 per cent drop compared with the corresponding figure for the previous year. Acreage declines have been particularly sharp in maize, jowar and bajra, which are staples for the poor. In pulses the area covered till then was only 18 lakh hectares, compared with the previous year's figure of 30.2 lakh hectares and a "normal" level of 103 lakh hectares. Finally, acreage covered by oilseeds had fallen short of the previous year's level by 51 per cent at 45 lakh hectares. The drop here has been particularly sharp for soyabean from 51 lakh hectares to 18 lakh hectares.
Combined with pessimistic predictions on monsoon recovery over the coming weeks, this evidence should have generated panic under normal circumstances. The government has indeed sat up and expressed concern, driven by the recognition that state elections are around the corner and general elections not too far away. But the response has been late in coming and has been subdued because the government has been lulled into complacency by three factors. First, the consecutive excellent or moderately good monsoons that the country has experienced over the last few years. Given the intensity of the shortfall, when it occurred, during those years and its geographical distribution, this meant little for food security in a country where foodgrain consumption data point to a fall not just in per capita foodgrain consumption but also in overall calorie intake even among the poor. Second, the expectation that even if the intensity and spread of the drought is as bad as in 1987, the fall in production is likely to be less than 10 per cent. Third, the belief that the large stocks of food grains that have accumulated in government godowns, as a result of high procurement and falling offtake, is more than adequate to take care of any such contingency.
In fact, encouraged by the available level of stocks, the government has declared that there is no danger of the drought affecting consumers adversely. The Union Agriculture Minister Mr. Ajit Singh reportedly stated: "There is no dearth of foodgrains or other essential items for the consumer, which can even be imported. It is the farmer who is going to be really hit because he faces loss of income."
The failure to mention the agricultural labourer here is surprising since according to the 55th round of the National Sample Survey on employment relating to 1999-2000, rural households dependent on wage employment in agriculture or other areas amounted to 22 per cent of the total in UP, 33 per cent in Punjab, 26 per cent in Haryana, 22 per cent in Rajasthan, 40 per cent in Madhya Pradesh, 50 per cent in Andhra Pradesh and 45 per cent in Karnataka. Most of these households, which are at the margin of subsistence would be affected by the fall in cultivation associated with a drought in two ways. They would not be able to earn adequate money incomes and they would be squeezed by the likely rise in food prices, particularly for commodities like coarse cereals which they consume.
Given this prospect it is surprising that the policy initiatives announced by the government recently seem to focus only on the farmer. To start with, resources from the Calamity Relief Fund, which was created at the instance of the Eleventh Finance Commission and has at its disposal Rs. 11,000 crore over a five-year period, are to be used for financing relief work. But the nature of such relief work has not been defined. Further, the fact that in a statement to the press the Minister for Agriculture has said that these resources are going to be made available to all farmers in drought hit districts and not just small and marginal farmers is revealing. It fails to mention the agricultural worker whose plight is likely to be severely affected.
Most of the other proposed measures are directly aimed at farmers. Nabard is to be instructed to defer recovery of interest on crop loans, and there is a small probability that interest dues may be waived altogether. Guidelines are to be issued to sugar mills to pay out arrears due to cane growers. And deferred payment of insurance premia under the National Agricultural Insurance Scheme is to be condoned.
The problem is that, besides ignoring the huge proportion of the rural population with limited or no assets, this partial, and yet to be implemented, response fails to engage the three most important bottlenecks to any successful management of the consequences of drought. The first is the inadequate reach of the public distribution system in most states, especially in the rural areas, which makes the sheer task of reaching food to those who would need it daunting. In fact, government policy over the last few years has moved in the direction of diluting the system rather than strengthening and expanding it. As a result the government would have to reach its stocks to the needy through the private trade, which is bound to resort to speculative hoarding, since prices are expected to rise in a situation like this. This makes the presence of large stocks in government godowns an inadequate insurance against both localised shortages as well as price increases.
The second is the fact that the government's stocks do not contain significant amounts of the commodities in whose case the shortfall in output is likely to be the largest. While the availability of large foreign exchange reserves with the government facilitates import of these commodities, this would have to be through the private trade route in the current liberalised trading environment. Here again private speculative activity is bound to drive up prices.
The third is the government's aversion on fiscal grounds to launching a massive food-for-work programme, and therefore its lack of experience in managing such a programme. It is almost common knowledge now that a phenomenon like drought can be devastating not so much because of the lack of access to food supplies but because of the lack of the requisite employment and income that allows people to purchase the food that is available. Over the last few years when evidence was mounting that foodstocks were accumulating in government godowns even while poverty was persisting at relatively high levels and reports of starvation were flowing in from parts of the country, there were many who made a case for using the food surpluses as a means to launch a more extensive food-for-work programme that would provide employment and incomes to the poor as well stimulate demand for an industrial sector which was burdened with excess capacity.
If the government had not ignored these calls on the grounds that it was not a fiscally prudent strategy to adopt, it would have been in a position to quickly respond to the income reduction-induced threat of near famine conditions. Not having responded, however, it would, even if it tries, be hard put to set up and manage such a large exercise in time to avert any significant human damage.
These bottlenecks to dealing effectively with the consequences of drought are already having their impact. Quite early into the monsoon season, expectations of monsoon failure have triggered an increase in the prices of many agricultural commodities, stocks and foreign exchange reserves with the government notwithstanding. To quote one example, in the Mumbai wholesale market, the price of groundnut oil spurted from Rs 420 per 10 kg trading lot on July 6 to Rs 438 by July 13. Refined palmolein gained Rs 17 during the same period to close at Rs 347 and refined soybean oil jumped from Rs 330 to Rs 346 per 10 kg. On July 15, groundnut oil jumped further by Rs 10 to Rs 448 and palmolein by Rs. 11 to Rs 358.
Meanwhile governments in the affected states are sensing the danger of loss of employment among the large mass of workers who are either partially or completely dependent on wage employment for a living. Not surprisingly, they have approached the Centre for a combination of food and cash support for relief and food-for-work programmes. Andhra Pradesh for example has asked for Rs 610 crore by way of financial assistance and 10 lakh tonnes of food grains for the purpose. While a "centre-friendly" state like AP is likely to get a quick response, past experience suggests that Delhi would be far less receptive to demands from many other states, making the rural workers and farmers the victim of cynical political strategies.
Thus, three immediate outcomes are likely, unless the monsoon recovers sharply. First, a decline in farmers' incomes as a result of loss of production and livestock. Second, the loss of agricultural workers' livelihoods as a result of the contraction in rural wage employment. Third, a sharp increase in food prices, as a result of speculation encouraged by the limited reach of the government's public distribution system as a means of reaching food to the poor, especially in the rural areas. Since, for reasons elaborated earlier, the government's efforts to counter these tendencies can only work partially, any further failure of the monsoon can be devastating.
The second-order fall-out of the decline in incomes and rise in food prices would be a sharp erosion in the real purchasing power of a large section of the population and a greater reticence on the part of the government to undertake expenditures that can aggravate the inflation. Both of these are bound to squeeze the demand for manufactures. Thus an intensification of the recession, which already afflicts the industrial sector, could ensue.
Thus the complacence, reflected in official statements, generated by the government's huge food stocks and large foreign exchange reserves is by no means warranted. But such complacence clearly dominates, encouraged by the tendency to see in the drought an opportunity to offload the embarrassingly large stocks of foodgrain in government godowns.
© MACROSCAN 2002