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Drought May Hit Rural Economy, Aggravating Poverty

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India's farm economy could contract this fiscal year for the first time in over a decade because of drought, threatening Prime Minister Narendra Modi's drive to lift millions in the countryside out of poverty and bolster his party's support.

Roughly half of India's farmland lacks irrigation and relies on monsoon rain, but this year's rainfall is officially forecast to be only 88 per cent of the long-term average and, for the first time in nearly three decades, farmers face a second straight year of drought or drought-like conditions.

That comes on top of a crash in commodity prices, unseasonable rain earlier this year and delayed sowing late last year because of scanty monsoon rain.

"Farmers are already reeling under heavy losses ... and now they don't have money to irrigate their fields or use an optimum level of inputs like fertiliser," said Ashok Gulati, an agricultural economist who formerly advised the government on crop support prices.

In the last official drought in 2009/10, the agricultural economy expanded about 1 percent.

But several private economists, including D.H. Pai Panandiker of think tank RPG Foundation, said the challenges in this fiscal year from April could shrink output by as much as 4 per cent, which would be the first contraction since 2002/03.

Panandiker estimated that a 4 per cent decline in farm output, which accounts for about 16 per cent of Asia's third-biggest economy, could shave 0.6 to 0.7 percentage point off the overall growth rate, all other things being equal.

Such a decline could bring the overall growth rate down below the 7.3 per cent seen in fiscal 2014/15 and push more people in the countryside closer to penury.

The central bank is looking for 7.6 per cent growth this fiscal year, having just cut its forecast from 7.8 per cent.

Monsoon rain has picked up after a delayed start but small-scale farmers are struggling.

"My two children go to a private school, where I have to deposit 25,000 rupees ($391) every six months," said Uday Vir Singh, a farmer in Mathura, a semi-arid city in Uttar Pradesh.

"God forbid I may soon have to pull them out of school," he said, sitting under a tree where farmers had gathered to protest at delays in getting compensation for recent crop damage.

Countryside Crisis
Rural distress is bad news for the ruling Bharatiya Janata Party, which wants to win elections in agrarian states such as Bihar and West Bengal that go to the polls over the coming year.

A good showing there is crucial to Modi's efforts to take control of the federal parliament's upper house, most of whose members are indirectly elected by state legislatures. Modi's lack of a majority in that house has stalled reforms such as making it easier for companies to acquire land.

Officials in the finance and farm ministries concede there is some cause for concern but say they have contingency plans.

They are ready to distribute late-sown, high-yielding seed varieties, provide interest-free loans and sell subsidised diesel to farmers for irrigation. They review their plans every week.

Finance Minister Arun Jaitley has said that rain is likely to be deficient in areas with good irrigation, mitigating the problem to some extent, and that sectors such as manufacturing could offset farm losses.

Economist Gulati was sceptical.

"Slower agriculture growth or any contraction there could impede overall economic growth despite any robust rise in services or manufacturing," he said.

Either way, economists said rural distress would not help Modi's efforts to raise nearly 500 million people in the countryside out of poverty.

Each percentage point growth in agriculture is two to three times more effective in reducing poverty than a similar rise in non-farm sectors, Gulati said.