India had a good monsoon in the last four years. Currently, India is experiencing a heatwave. The summer season from March to May is forecast to be 3 to 5 degrees above normal. Preliminary, pre-monsoon analysis and climate phenomena forecasted by the domestic and international weather departments suggest the possibility of El Nino in 2023. India is likely to bear a pre- and post-monsoon pattern, which can have an effect on agriculture and pose health hazards. This could have an effect on the Indian economy, and inflation which is already elevated. The domestic economy, which has already been struggling to recover from the chaos in the world since H2 2022, may experience further challenges in H2 2023. Global instability is currently exerting pressure on the domestic stock market. India is losing the premium valuation earned during 2020 to 2022. The uncertainty could extend the relative performance and recovery rate of India in 2023. However, the domestic sector, which is closely associated with rural and agricultural markets like FMCG, consumption, car, fertilizers, sugar, etc., will be most affected.
Heatwave: no impact on food grains but harm on fruits and vegetables
The heatwave forecasted for March to May 2023, would harm crops and lower productivity. However, the food grain cultivation is low in this period limiting the damage. The India Meteorological Department (IMD) and the Ministry of Agriculture and Farmers Welfare have advised farmers to harvest wheat, a rabi crop, in advance as needed. Farmers are in the last phase of harvesting wheat, limiting losses in production. India is forecasting a record wheat production in 2023 due to a very good rabi season.
Total rabi sowing area for FY23 increased by 3.25% due to an average 5.4% increase in prices. The other factors supporting production are, strong level of reservoirs (82.4billion cubic meters as of March 16, 2023, 6% above 10-years average), timely cultivation and robust irrigation. Hence, the effect of the heatwave on rabi harvesting is forecasted to be minimal.
However, abnormal rise in temperature will affect crops, fruits, and vegetables given below which are cultivated during April and May.
- Wheat: March to May is harvesting period.
- Mustard: Some areas harvested/ harvesting.
- Fruits and vegetables: Onion, ladyfinger, watermelon, pumpkin, muskmelon, cucumber, bottle gourd, ridge gourd, brinjal, cauliflower, cabbage, tomato, chilli, guava etc.
- Potato: Harvesting.
- Mango: April – May to June – is the best period for Mango.
- Livestock: Cow and buffalo. There will be a likely impact on milk production.
As noticed, food grain cultivation would be low in the heatwave period. But cultivation of vegetables and fruit, and milk production could be affected. Food accounts for ~46% of the Consumer Price Index (CPI) in India. The CPI is already elevated at 6.44% in February 2023. High inflation is a concern for the economy and the RBI. Hence the cautious monetary policy can prevail. And the combined effect of both will impact demand and profitability.
El Nino can affect the kharif production in FY24
It is too early to presume, but based on preliminary data analysis and reports there is the risk of El Nino in FY24. The US government weather agency reports that La Nina – the cool wave – has left the Pacific region after a gap of 1.5 years. Now it is neutrally predicting El Nino in the summer season. In parallel, the Bureaus of Meteorology in Australia and Japan have issued an El Nino ‘WATCH’ in their most recent outlooks. As per IMD, El Nino would be at the “neutral level” during the next three months. Its real effect on the southwest monsoon could be assessed only in April, when they provide the first long-term forecast for the monsoon.
Well, the key point for us to appreciate is that India had good rainfall during the last 4 years. El Nino occurs every two to seven years, with an average of three to four years. The actual impact of El Nino varies with its intensity. However, on average it leads to a 9.7% drop in normal rainfall and a 5.7% fall in kharif food grain production. This is due to the fact that it often caused higher temperatures, less rain than usual, and uneven rain distribution.
of the Consumer Price Index (CPI) in India. The CPI is already elevated at 6.44% in February 2023. High inflation is a concern for the economy and the RBI. Hence the cautious monetary policy can prevail. And the combined effect of both will impact demand and profitability.
El Nino can affect the kharif production in FY24
It is too early to presume, but based on preliminary data analysis and reports there is the risk of El Nino in FY24. The US government weather agency reports that La Nina – the cool wave – has left the Pacific region after a gap of 1.5years. Now it is neutrally predicting El Nino in the summer season. In parallel, the Bureaus of Meteorology in Australia and Japan have issued an El Nino ‘WATCH’ in their most recent outlooks. As per IMD, El Nino would be at the “neutral level” during the next three months. Its real effect on the southwest monsoon could be assessed only in April, when they provide the first long-term forecast for the monsoon.
Well, the key point for us to appreciate is that India had a good rainfall during the last 4 years. El Nino occurs every two to seven years, with an average of three to four years. The actual impact of El Nino varies with its intensity. However, on average it leads to a 9.7% drop in normal rainfall and a 5.7% fall in kharif food grain production. This is due to the fact that it often caused higher temperatures, less rain than usual, and uneven rain distribution.
Impact on the Indian economy
Again, it is a bit early to comment, but the climate pattern in the Pacific region and historic data suggests a risk of El Nino in 2023. And we will come to know the degree of the effect, i.e., moderate, average, or strong, by June – July. The ongoing heatwave and an El Nino pre-position does makes the environment precautionary.
The Indian economy was on a recovery path from the global slowdown, and climate change can hinder the recovery process. It will affect the rural market directly, slow income growth depending on the change in sowing and yield.
Directly, it will affect the inflation rate, which will hurt rural and urban demand. It reduces the disposable income of consumers, affecting overall demand. For corporates, the selling price will increase due to rise in cost of production causing moderation in volume and profits.
The sectors which would be directly affected by the fall in personal income in the rural and urban segments are fertilisers, discretionary and durables consumption and autos. Staples, FMCG, sugar, and agricultural industries would be most impacted by the rise in production costs.
| What is El Nino? The monsoon is a result of the flow of moisture-laden winds because of the variation in temperature and pressure across the oceans. There are a number of climatic phenomenon that affect the temperature distribution over the oceans, thus affecting the direction and intensity of the moisture laden winds. El Nino events are associated with a warming of surface water in the central and eastern tropical Pacific Ocean, while La Nina events are the reverse, with a sustained cooling of these same areas. These changes in the Pacific Ocean and its overlying atmosphere occur in a cycle known as the El Niño–Southern Oscillation (ENSO). This distortion in pressure and temperature recurs every 4-5 years. But it may not happen exactly after 4-5 years, or it may not happen at all. El Nino and La Nina episodes typically last nine to 12 months, but some prolonged events may last for years. They often begin to form between June and August, reach peak strength between December and April, and then decay between May and July of the following year. These deviations from normal surface temperatures can have large-scale impacts on global weather and climate, including the southwest summer monsoon in India. |
