Even as the economy has come to a fast track after a two-year COVID-19 hit, the latest development in the Pacific Ocean is posing a risk to the monsoon in India — El Nino. The phenomenon normally has the potential to affect the country’s growth in general and agriculture growth in particular. Here’s what is El Nino and how it affects the economy.
What Is El Nino?
In normal years, the coastal waters of the Pacific Ocean near the South American region along Peru and Ecuador (Eastern Pacific) remain cold, while the other side of the Ocean (Western Pacific) near Australia remains relatively warm. It creates a normal atmospheric condition in which ground-level winds move from east to west (also called easterly trade winds) taking warmer surface water to the western coast of the Pacific, thus keeping the Peruvian coast colder.
It then rises upwards near Australia due to a warmer surface, cause precipitation there and mostly divert back to the eastern Pacific side in the upper atmosphere. It’s technically called ‘Walker Circulation’. In this condition, the monsoon in India does not get affected negatively.
In El Nino year, the trade winds get weakened due to reasons not fully known yet. They are not able to move the warmer surface water of the Peruvian coast to the western Pacific side, due to which the surface water of the eastern Pacific Ocean gets warmer. This affects the Walker Circulation, which in turn adversely affects the southwest monsoon winds in India. La Nino is opposite of the El Nino, which aids monsoon in India.
El Nino: How Does It Affect the Indian Economy?
India’s agriculture is mostly dependent on the southwest monsoon for its water resources. Any impact on monsoon affects agriculture in India adversely, which in turn also impacts other economic sectors in the country. Not only India, El Nino has the potential to affect other economies globally.
According to The Washington Post, a recent study published in the journal Science found that some of the most intense past El Niño events cost the global economy more than $4 trillion over the following years. “The authors of the new study estimate the 2023 El Nino event could hold back the global economy by $3 trillion over the next five years,” The Washington Post said in a report.
The previous El Nino years were 2002-03 and 2009-10 and 2015-16.
Last week, RBI Governor Shaktikanta Das in his monetary policy statement said, “On the growth outlook, the headwinds from weak external demand, volatility in global financial markets, protracted geopolitical tensions and intensity of El Nino impact, however, pose risks to the outlook.”
Rating agency ICRA has also said, “There is a downside risk of up to 50 bps (on GDP growth in FY2024) from meterialisation of El Nino conditions, even as frontloaded capex by the government and the states and a rapid execution of infra projects could provide an upside.”
According to a senior economist, a weak monsoon also causes inflation to rise due to lower crop productivity. It has links with manufacturing sector. Also, agriculture growth also affects rural demand significantly.
He, however, said that this year, positive Indian Ocean Dipole (IOD) conditions are also developing in the Indian Ocean, so monsoon may not be affected significantly this year.
Currently, the CPI inflation in India is at a 2-year low of 4.25 per cent, while WPI inflation is at over 7-year low of 3.5 per cent.
Indian Economy: El Nino And Indian Ocean Dipole
Last month, the IMD kept its forecast of normal rainfall during June-September 2023 at 96 per cent of the long-period average (LPA), which is a 50-year mean, of 87 cm. Though there is an El Nino condition developing in the Pacific Ocean, a positive Indian Ocean Dipole is also likely to play out during the monsoon.
A positive IOD leads to greater monsoon rainfall and more active (above normal rainfall) monsoon days in the Indian sub-continent.
The RBI governor last week said uncertainties remain on the spatial and temporal distribution of monsoon and on the interplay between El Nino and the Indian Ocean Dipole (IOD).
SBI in its Ecowrap report said, “As per IMD’s long range forecast released in May, southwest monsoon seasonal (June to September) rainfall over the country as a whole is most likely to be normal (96 to 104 per cent of LPA).”
It said the long-term trends in NOAAs Multi Variate ENSO Index Version 2 show that ENSO has moved in positive indicating onset of El Niño conditions over the equatorial Pacific Ocean. The Indian Ocean Dipole trends as per NASA OD index continues to be neutral. “Combining the two phenomena, monsoon is expected to be normal.”
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