NEW DELHI : India’s efforts to push up gross domestic product growth and bring down inflation could be severely tested next financial year starting April if the 2014 southwest monsoon turns out to be poor, rating agency CRISIL said.
“In its fight against weak growth and high inflation, the last thing that India’s economy needs is monsoon failure, which could drive up food inflation as well as weaken GDP growth,” CRISIL said in a report. If the monsoon were to get adversely affected, the growth could be 5.2% in 2014-15, much lower than the current forecast of 6.0%, the rating agency said.
Similarly, a poor monsoon could push up Consumer Price Index inflation above the current forecast of 8.0% in 2014-15, it said. “…if the monsoon fails, inflation can touch double digits and challenge
monetary policy,” it said.
The Reserve Bank of India is aiming to bring down inflation rate based on CPI (Combined) to 8.0% by January 2015. “This (bringing down inflation to 8.0%) is only possible if the downward momentum in food inflation continues for which a normal monsoon in 2014 is critical,” it said.
The inflation rate based on CPI (Combined) was at a two-year low of 8.79% in January.
The CRISIL report follows predictions of a possible El Nino event in 2014. “There is a fair degree of uncertainty associated with these early forecasts, so it will be too premature to conclude that an El Nino will occur in 2014. And, even the occurrence of an El Nino does not necessarily imply monsoon failure in India,” CRISIL said.
Past data suggest a 30% chance of an El Nino morphing into a monsoon failure as India faced a drought situation only twice out of the seven times the dreaded weather condition occurred since 1991, CRISIL said. El Nino, which is an unusual warming of the surface water in the equatorial Pacific, is normally associated with a weakening of the Asian monsoon.