IMPACT OF EL NINO ON THE INDIAN ECONOMY

The EL Nino effect has been in the news

recently with the India Meteorological

Department (IMD) forecasting a 60

percent probability of El Nino this year

along with a below-normal monsoon

projection.

IMPACT OF EL NINO ON THE INDIAN ECONOMY

So, what is El Nino?

El Nino, which means ‘little boy’ in

Spanish, is a weather phenomenon

characterized by unusually warm

ocean surface temperatures in the

central and eastern tropical Pacific.

IMPACT OF EL NINO ON THE INDIAN ECONOMY

IMPACT OF EL NINO ON THE INDIAN ECONOMY

El Nino largely causes a drought-like situation and even excessive rains.

This phenomenon which emerges after a gap of 3 to 7 years has a

significant impact on climate in many parts of the world and has a

warming influence on global temperatures.

A strong El Nino can cause severe drought in Australia, Southeast Asia

and India while drenching other regions such as the US midwest

and Brazil.

Why is it in the news?

IMPACT OF EL NINO ON THE INDIAN ECONOMY

IMPACT OF EL NINO ON THE INDIAN ECONOMY

The El Nino phenomenon dramatically affects the weather in many parts

of the world. A strong El Nino can cause drought-like conditions.

Agriculture in India depends heavily on rainfall. A poor monsoon could

lower the production of crops, thereby impacting inflation and GDP

growth.

Agriculture is nearly 18 percent of India’s GDP. A lower agricultural

output would eventually mean lower rural disposable income.

Why is the Reserve Bank of

India (RBI) worried?

The RBI may have a tough task ahead as an EL Nino effect can trigger inflation

resulting in further rate hikes. This could impact the investment cycle, put brakes

on growth, increase EMI burden and the overall cost of living.

However, not all El Nino years led to a drought in India. For instance, 1997/98 was a

strong El Nino year but there was no drought. On the other hand, a moderate El

Nino in 2002 resulted in one of the worst droughts.

Even if El Nino occurs it may not necessarily impact the monsoon as it all depends

on when the El Nino sets in.

IMPACT OF EL NINO ON THE INDIAN ECONOMY

Let us see the formula of the Current Account Balance (CAB)

CAB = X - M + NI + NCTX = Exports of goods and servicesM = Imports of goods and servicesNI = Net income abroad  [Salaries paid or received,

credit / debit of income from

FII & FDI etc. ]

NCT = Net current transfers [Workers' Remittances

(unilateral), Donations,

Aids & Grants, Official,

Assistance and Pensions etc]

CURRENT ACCOUNT DEFICIT

Hope you have understood the

phenomenon of El Nino and how it

can impact the Indian Economy.

IMPACT OF EL NINO ON THE INDIAN ECONOMY

Please give us

your feedback at

professor@tataamc.com

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