- The Washington Times - Saturday, July 27, 2002

CALCUTTA The Indian government this week warned that the summer monsoon rains had failed to arrive, leaving the world's most populous democracy facing the worst drought in more than 12 years.

According to Agriculture Minister Ajit Singh, the worst-hit states are Uttar Pradesh, Haryana, Rajasthan, Karnataka, Tamil Nadu and Punjab. Rainfall has been 80 percent below normal in the Utter Pradesh region and practically zero in Rajasthan.

However, the government is not calling it a drought officially just yet. "It may not be a drought, the country has been hit by the dry spell so far," Mr. Singh said.

The minister added that there has to be more than 50 percent harvest damage before a region can be declared drought-affected and none of the Indian states has experienced that sort of damage yet.

Mr. Singh also said that an average Indian on the street was unlikely to be affected because there were enough food stocks.

The grain reserve reached 65 million tons on May 31, nearly four times the requirement of the country's buffer stock level.

Adequate rains every year for the last 10 years have ensured an overflowing granary in the country.

Also, the government has said that the country had sufficient foreign exchange for imports. At more than $58 billion, its foreign-exchange reserves are the highest ever.

Apart from farmers in the parched regions of the country who are counting their miseries, Indian industry is worried about the impact of the drought on the economy, which has just started to show signs of an upturn.

Economists believe that the droughtlike condition in India will not affect the nascent industrial recovery, at least in the next six months, as its links with agriculture production is not strong. There is also the winter crop to look forward to.

A senior economist with credit-rating agency CRISIL's Center for Economic Research, Abheek Barua, said that the industrial recovery at the moment is somewhat independent of the agriculture cycle. "The recovery will continue. That is our call at CRISIL on the impact on industry," he said.

According to economist Abhijit Sen, based on the current trend, agricultural production could fall 1 percent to 1.5 percent this year from last year's level.

But experts also caution that it is still too early to gauge the real impact.

"Almost all over in India, there is shortfall of 15 [percent] to 20 percent of rainfall, thus it is early yet" for ruling out the negative impact on the economy, Mr. Sen said. "However, if the government spends enough money in the drought-hit areas, the impact on demand for industrial products could be lower."

Nevertheless, makers of consumables and consumer durables are scurrying to assess their potential losses resulting from a poor monsoon.

"There are, of course, other sectors like consumer durables where agriculture has a direct impact, which at least over the short time would be impacted adversely," Mr. Barua said.

Yet another sector that is highly skeptical is the stock market.

India's benchmark stock index, the Sensex, hit an eight-month low this week.

"Market players were concerned after Agriculture Minister Ajit Singh said a droughtlike situation was affecting large parts of the country and is the worst in the last decade," said Rajesh Jain of Pranav Securities, a Bombay-based stock brokerage. "All eyes will now be on the quarterly performances of some of the major companies to determine the future trend of the market."

Meanwhile, the worried government has already crafted strategies to combat the drought if it happens.

These include assured availability of inputs like seeds and manures and other assistance to all state administrations; augmentation of fodder and drinking-water supply; an increase in the public distribution system that is responsible for distribution of food grain; and, extending input subsidies that are currently available only to small and marginal farmers to all categories of farmers in the event of crop damage.

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