)
The Indian Meteorological Department (IMD) is not known for its quality of monsoon predictions. In the ten years between 2000-09, the rainfall has been within 2 per cent of IMD's projection only twice. IMD has been off the mark by nearly 20 per cent twice and off target by more than 10 per cent twice. More importantly IMD has been wrong in the drought years.
With an unenviable projection track record, one cannot be blamed for not taking IMD's projections seriously. However, this time around IMD has said that there is a higher probability of lower monsoon on account of the El Nino effect. Chances are that IMD might be right this time around, not because of its skills but due to EL Nino being a global phenomenon and it has already started to play out.
Australia's Met department housed in Melbourne, one of the most respected globally - expects El Nino to hit sometime in the middle of the year. Analysts tracking soft (agriculture) commodities are revising their price targets higher. Though Australia is the seventh largest exporter of agriculture commodities, it is considered as a bellwether country for a number of soft commodities. Since 1900, of the major droughts faced by the country, two-thirds of it can be traced to El Nino.
For India, El Nino effects will be at play when a new government takes charge in Delhi. Media reports suggests that a NDA government led by Narendra Modi is a strong possibility. The first real test for the government will be inflation which would be even more difficult to control with El Nino acting against it. To add to the problem are public statements made by Narendra Modi and former party chief of BJP, Nitin Gadkari.
Narendra Modi in an election rally in Punjab said that if BJP comes to power, they would ensure 50 per cent addition to the cost of production in Minimum Support Price (MSP) to farmers. Between 2003-04 to 2013-14, MSP for wheat has already risen from Rs 630 to Rs 1,400 a quintal while in the case of paddy, it has moved up from Rs 550 to Rs 1,310.There is a case of cost of production going up especially after MNERGA, as has been brought forward during fixing of the sugarcane prices. But a sharp rise in purchase price for the government would create inflationary pressures from the mandi levels itself.
Government would either have to absorb the cost rise, which would mean a higher subsidy element and a higher fiscal deficit or if it decides to pass it on it would mean higher inflation.
In any case inflation, both core and food have been sticky and has been the main reason for RBI to prevent reducing lower interest. Raising MSP prices would delay lowering of interest rate further.
The second sound byte on the issue of inflation came from former senior party leader Nitin Gadkari. In an interview to DNA, he said that inflation will be bought down by around 25 per cent in the first six months. While details of how that will be done was not given in the interview, a look at the party's manifesto says that they would set up a Price Stabilization Fund to control and monitor inflation.
It's too early to comment on the fund with scarce information on how it will function, but expecting it to yield results within the first six months looks like a pipedream.
The new government's first challenge will not be a fiery opposition but a challenge thrown by nature. How the government tackles it will decide inflation, interest rates and growth of the economy going forward.
