Too little, too late

The monsoon has revived, late in the day, but crop forecasts for the year ahead remain grim.

A LATE revival in the monsoon, on which so much hinged, did indeed take place, bringing about the prospect that the disaster scenarios for India sketched just days before would not actually materialise. But the crop forecasts for the year ahead remain grim and uncertain. And even if a modest recovery has been registered on the fodder front, the drinking water situation is precarious at best.

By the first week of September, the number of meteorological sub-divisions registering "scanty" or "deficient" rainfall had shrunk to 19, from the ominous figure of 26 at the beginning of August. Of the 19, the three met sub-divisions reporting "scanty" rain were West Rajasthan, East Rajasthan and Haryana, Chandigarh and Delhi, which together constitute one unit. At the beginning of August, there were two other sub-divisions - East Madhya Pradesh and West Uttar Pradesh - in this category.

The India Meteorological Department defines "deficient" rainfall as precipitation in the range between 40 and 80 per cent of the long-period average (LPA) for any region. "Scanty" rainfall refers to precipitation below 40 per cent of the LPA.

By these criteria, several of the agriculturally vital regions have just managed to slip over the statistical threshold separating scanty from deficient rainfall. Punjab, for instance, has had just over 50 per cent of the normal rainfall, while western Uttar Pradesh is only marginally better off. Most of Madhya Pradesh has received less than half the normal rainfall. Haryana has received 60 per cent of normal and East Rajasthan 40 per cent. The most serious deficiencies have occurred in West Rajasthan, where rainfall has been a paltry 26 per cent of the LPA.

In terms of the progress of sowing operations, the area under paddy had by September 2 touched 26.4 million hectares, which is just over 65 per cent of the figure normally registered in the kharif season. The entire cycle is yet to run its course, since about a fifth of the sowing of paddy takes place in the early part of September.

The area sown with coarse grain was 15.8 million ha as of September 2, against a normal kharif figure of 23.2 million ha. Here again, a part of the sowing, that is, around 2 million ha, is customarily done in the first half of September and could well take place in the event of rainfall. But in most of Rajasthan and parts of Haryana and Madhya Pradesh, much of the crop sown in June and the early part of July is damaged irretrievably.

Oilseeds, pulses and cotton have shown significant shortfalls in terms of area sown. And the figures available so far do not bear any reference to the probability of crop survival.

South-West monsoon: June to September, 2002Source: India Meteorological Department.

Officials at the Agriculture Ministry argue that in the event of rainfall deficiency, the productivity of rice cultivation tends to improve, since farmers would concentrate their scarce resources on the best available lands. But this overlooks the fact that the surplus farmers in northwestern India have incurred a huge expense in keeping their paddy crop alive through the torrid month of July. Without a substantial increase in support prices, they may end up in a financially unviable situation and could well decide to cut their losses rather than go through the whole crop cycle. If rice output were to reflect the decline in area sown, then the production this year could be in the region of 72-75 million tonnes, which would be precariously low.

The Food Corporation of India (FCI) has 24 million tonnes of rice in stock. Adding on the more substantial wheat stocks, the country has a total of 65 million tonnes of grain in storage. Yet the big problem that the government confronts is not that of physical availability, but of fiscal resources to meet the huge relief commitments that are soon going to arise.

In late August, Agriculture Ministry officials began to assess the extent of damage in the States. There are two main sources of funds for contingencies such as this: the Calamity Relief Fund (CRF), which has already been tapped, and the National Calamity Contingency Fund (NCCF), which will soon have to be brought into play. The quantum released so far is rather modest. Until late August, the government had disbursed Rs.1,157 crores from the CRF for 12 drought-affected States. Another sanctioned amount of Rs.235 crores remained to be disbursed to four other States, in anticipation of compliance reports being filed in accordance with statutory audit requirements. With this, the share of the drought-affected States in the CRF would be effectively exhausted.

Even allowing for early over-statements of the damage, the funds available with the Centre are inadequate to address the dimensions of the drought crisis. As of mid-August, the claims for assistance from the States stood at Rs.19,200 crores. In addition, there was a stated requirement for 15 million tonnes in foodgrain, which, if reckoned at the lowest issue price currently in operation, would mean a commitment of Rs.7,000 crores.

A part of the expenditure in issuing grain for public works programmes in the States could be made good by a decline in the carrying costs of large stocks. At its currently bloated levels, the carrying costs of food stocks - that is, the cost of transport, storage and interest - constitute almost 45 per cent of the food subsidy bill borne by the government. This could be contained within a more reasonable figure, contributing to a decline in the subsidy anticipated for the year.

If this component of expenditure can be met through some feasible economy measures elsewhere, the task of raising funds to repair the direct damage caused by the drought would be tougher still. The CRF is virtually exhausted while the NCCF, created as recommended by the Eleventh Finance Commission, is dependent entirely on various special cesses and surcharges that the Central government may levy. Under pressure from his political constituencies, Yashwant Sinha, as the Finance Minister responsible for the 2002-03 Budget, abolished the 2 per cent surcharge on corporate and personal income taxes that was the main source of sustenance of the NCCF. Alongside he introduced a surcharge of 5 per cent on personal and corporate income, exclusively to finance "national security" needs. The Central government's sole source of funds for drought relief now is the "National Calamity Contingency Duty" imposed on cigarettes and other tobacco products, which is expected to net Rs.1,600 crores over the financial year.

The patent inadequacy of the available funds would be evident. With the monsoon season due to be declared closed on September 15, the time to mobilise resources in a more credible manner is approaching. By early October, the States are likely to complete their crop damage assessments and begin making their claims on NCCF funds. From the drift and tenor of current policy discussions, there is little to assume that the Central government will be anywhere near ready to respond.

Aggregate monsoon rainfall is running at a deficit of around 21 per cent. This is an improvement over the 30 per cent deficit seen at the beginning of August, when it appeared that 2002 would end up being the worst year since 1972. The outlook now is that this year would end up being slightly better than 1972, which finally registered a 24 per cent rainfall deficit. If the current figures are maintained, this year could be just slightly worse than 1979 and 1987, in each of which rainfall was about 19 per cent in deficit.

INTERESTINGLY, the levels of impact on agriculture and the overall economy in the past three years that could serve as a benchmark, were widely disparate. In 1972-73, the worst of these years in terms of rainfall, gross domestic product in agriculture shrank by 5.6 per cent, while the overall economic downturn was of the order of 0.31 per cent.

In 1979, which was relatively less adverse in terms of rainfall, the economic impact was little less than catastrophic. GDP in agriculture fell by no less than 12.8 per cent and the economy contracted by 5.2 per cent.

To continue this catalogue of the anomalous impact of droughts: in 1987, which had virtually the same monsoon performance as 1979, agriculture contracted by around 1.4 per cent while the economy as a whole expanded by an anaemic, though in the circumstances commendable, 3.8 per cent.

The difference between the three years lay essentially in fiscal posture. In 1972, the government was committed strongly to a regime of progressive taxation and rising outlays in mass employment programmes. Poor tax compliance, rising deficits and consequent inflationary pressures were beginning to erode this commitment, but the government stayed the course all through 1972-73, before the oil price shock the next year forced a massive budgetary contraction.

In 1979 the government was in political disarray, with the fiscal apparatus a shambles and the second oil price shock virtually coinciding with monsoon failure. Far from seeking to deal with the drought, the government was obsessively preoccupied with its own survival, as the Janata Party fought a futile battle against its own growing irrelevance.

The political mood when the 1987 drought struck was decidedly more upbeat. As Prime Minister Rajiv Gandhi enjoyed the largest ever parliamentary majority, faced little dissent, and disposed of a fiscal apparatus that seemed, at least superficially, rather healthy. There were growing signs of strain on the internal and external debt situations, but the moment of reckoning still lay three years in the future. Committed to a regime of moderation in tax rates, the Rajiv Gandhi government managed to finance a substantial rural rescue programme largely through borrowings.

A singular feature of the current government, and particularly the new incumbent in the Finance Ministry, Jaswant Singh, is that it seems disinclined to begin asking the hard questions. Evasion of responsibility would undoubtedly be the favoured course and when that becomes unsustainable, perhaps a quick recourse to the easy option of market borrowings. But with the financial system creaking under the strain of a decade of speculative excess, that option may not quite be the most prudent. That leaves no option open except raising taxes, and that too by a significant margin. This poses a difficult conundrum for the BJP, which has, since being routed in the municipal elections in Delhi early this year, tended to view taxes on the middle class as the singular source of its growing woes. In the context of the drought though, the costs of projecting political interests from the municipal to the national level could well prove unacceptable to the larger public.