Will El Nino wreck India's economy?

On Tuesday, private forecaster Skymet predicted a sub-normal monsoon in India, courtesy El Nino that's threatening a widespread devastation globally.

Given the fears of an imminent drought, the next government has a tall task ahead of it. In an exclusive discussion on CNBC-TV18, Skymet CEO Jatin Singh, ICRIER Chair Professor (Agriculture) Ashok Gulati, and JP Morgan's Jahangir Aziz put forth their viewpoints on El Nino and its real impact on the economy.

The Skymet CEO feels an equitable distribution of rains can be a silver lining in this situation. According to him, there is a 40% chance that rainfall in June-September would be less than average, a 25% chance of a drought and zero percent chance of excess rains.

So will scanty rains hit India's farm production?

Professor Gulati sounds hopeful on this aspect. He believes the impact of El Nino need not be source of concern for staples. Its impact on food prices is expected to be minimal as India has sufficient stock of cereals. "So cereal inflation can be ruled out," he said adding March inflation rose primarily because of higher fruits prices. Most fruits track 30% import duty, if that is brought down, it can be controlled too, suggested professor Gulati.

Agreeing with Prof Gulati, Jahangir Aziz said staple inflation is never a problem, but soaring prices of fruits, vegetables, pulses, fruits etc are. "The pace at which prices of these have increased is astonishing."

Aziz is of course skeptical of a revival in economic activity, which is hit by acceleration in inflation and deceleration in growth. "People have focused on demand side inflation way too much, expecting a slowdown in inflation when growth has fallen. "But there is a supply side as well" that is getting squeezed. He says by June-July the monsoon effects will begin to feed into the households and market.

When the discussion veered towards scanty rains leading to drought, Prof Gulati pointed out that statistically India has faced drought every 4.4 years. All El Nino years were not necessarily drought years, though the opposite is true. Since last drought in India was in 2009, this year can be a drought year.

There is a consensus among the experts that if the next government manages to keep the lid on fiscal deficit, and if RBI governor Raghuram Rajan keeps his promise on rates, India may avert El-Nino devastations.