The government is concerned as well. The finance ministry’s latest monthly review of the economy flagged the El Niño risk, pointing out: “It is important…to be vigilant against potential risks such as El Niño conditions creating drought conditions and lowering agricultural output and elevating prices, geopolitical developments and global financial stability.”

If an El Niño does occur later in the year, as even meteorologists elsewhere in the world predict, it could end the run of good monsoons in the last four years, though this is not certain. India has had good monsoons even in El Niño years, and deficient rainfall in years when the El Niño was not prevalent (Chart 1).

But the phenomenon is strong enough and its potential economic effects serious enough for meteorologists across the world to monitor its progress closely. If an El Niño does materialize, what can we expect for the Indian economy in the year ahead?

Little Boy

The El Niño (Spanish for ‘little boy’) refers to shifts in weather conditions between the eastern Pacific Ocean near the coast of South America, and the western Pacific near Australia and Indonesia. In a ‘normal’ year, an area of high pressure develops at the western end of the Pacific Ocean, and a low pressure over the eastern Pacific. This pushes strong winds (the so-called ‘trade winds’) eastward towards the coasts of Indonesia and Australia, taking warm water with it, and causing rains near those countries.

These weather conditions can improve, or worsen, the Indian monsoon as well. If the pressure difference between the eastern and western pacific increases, the Indian monsoon can become wetter than normal, as the trade winds are stronger—a phenomenon known as La Nina. This is what we have seen in the last three to four years.

The El Niño occurs when this pressure difference weakens. In this case, the low pressure moves away from Indonesia and back towards the eastern Pacific, slowing the trade winds and causing weaker rainfall, and possibly even drought across Australia and Asia.

While it’s not certain that an El Niño year can cause monsoon rainfall to fall seriously short of normal, the link is strong enough. An ICRIER working paper by Shweta Saini and Ashok Gulati in 2014 found that from the 1950s till 2013, there were 14 drought years, of which 11 occurred in El Niño years.

But of the 23 El Niño years in that period, only 11 years resulted in drought. “Therefore, it is very clear that not all El Niño years converted into droughts for India and not all (but most) Indian droughts happened in El Niño years,” the authors concluded. However, the authors also found that all six drought years after 1980 occurred in El Niño years. Interestingly, the most extreme El Niño year ever, in 1997, was a year when the Indian monsoon was normal, despite dire predictions to the contrary.

The less than perfect cause-and-effect relationship between El Niño years and drought in India are due to a range of other weather patterns which can sometimes work to offset the effects of an El Niño. For instance, similar to the El Niño pattern, there are varying differences between the sea surface temperature and air pressure over the western and eastern Indian Ocean. Shifts in these pressure and temperature differences across the Indian Ocean can work to offset, or reinforce, the effect of the El Niño on the Indian monsoon.

Drought or not, average rainfall is lower in an El Niño year. As Chart 2 shows, agricultural GVA (gross value added) is, as expected, highly correlated with the extent to which the actual rainfall in any given year falls above or below the long-term average.

What is the impact on GDP? An IMF working paper by Paul Cashin, Kamiar Mohaddes and Mehdi Raissi in 2015 looked at the macroeconomic impact of El Niño around the world. For India, they found that an El Niño event causes GDP to contract by 0.15 percentage points in the first quarter after the event, with that impact rising to a cumulative amount of 0.25 percentage points a year later.

“The negative effect of El Niño is rather muted in India, due to a number of mitigating factors,” the authors found. Among them were the declining share of agriculture in India’s GVA, and an increasing share of Rabi (winter) crops in agricultural output. “Moreover, due to more developed agricultural markets and policies, rising agriculture yield, and climatological early warning systems, farmers are better able to switch to more drought-resistant and short-duration crops (with government assistance), at reasonably short notice,” the authors noted.

Complicating the Picture

But this assessment is optimistic. For instance, the study points out that an El Niño, by causing more droughts and higher temperatures, increases the demand for both fuel and non-fuel commodities, causing a spike in commodity prices. The authors found that an El Niño event causes oil prices to rise by 13.9% over the following four quarters, and non-fuel commodities to rise in price by 5.3% over the same period. Thus, this filters through into inflation as well, with the cumulative increase in inflation being estimated at around 0.6 percentage points after four quarters.

Further, while the authors of the IMF paper point to the decreasing share of agriculture in overall GDP as an indicator that the El Niño impact may be more muted, the broader impact of weak rainfall or drought on the Rural economy and rural employment are still complex and can be far-reaching.

This is especially true post-covid, given that the proportion of the labour force in agriculture actually rose from 42.5% in 2018-19 to 45.5% in 2021-22, reversing a trend of movement of labour out of agriculture over the previous decade. Thus, developments in the agricultural economy have become more important, not less, in the last few years.

During the last El Niño episode between 2014 and 2016, agricultural growth slowed to less than 1%, but rural wages endured a much more prolonged flattening out in real terms. Even when agricultural growth improved after 2016, rural wages, after being adjusted for inflation, remained subdued, according to a 2019 RBI paper titled ‘Rural Wage Dynamics in India: What Role does Inflation Play?’

Overall growth in agricultural wages for men, among different categories of labour, varied from 0% to around 6% between November 2014 and November 2022 (the exception being horticultural workers, for whom rose by about 11%). Outside of agriculture, in the critical sector of rural construction, which has acted as a major employer over the last decade, wages for males actually fell in real terms by about two percentage points.

While part of the reason for the weakness in rural wages may have to do with factors other than weak rainfall (for example, demonetization), the net effect is that the El Niño, if it does happen, will occur at a particularly vulnerable time for the rural economy.

There are other indicators that the rural economy is not doing well. In December, for instance, market research firm Nielsen IQ pointed to a sharp disparity between FMCG rural and urban markets for the quarter of September 2022. While urban markets were growing, rural markets were actually declining. In fact, the only way that FMCG companies have actually seen growth in their topline is by hiking prices—volume growth between the latter part of 2021 and late 2022 was negative for rural areas, though it saw a small increase in urban areas.

The auto sector is another indicator. Reviewing vehicle sales for the last quarter of 2022-23, the Federation of Automobile Dealers Associations (FADA) noted that all categories of vehicles saw double-digit growth in sales except for tractors. For March, two-wheeler sales, FADA noted, were positive. However, it said, “Although the two-wheeler segment demonstrated year-on-year growth, it remains significantly below pre-pandemic levels, indicating that rural India is still bearing the burden of high inflationary costs.” Incidentally, FADA also noted that, “for the third consecutive month, US Government agencies have warned of the possibility of El Niño’s arrival later this year, which could lead to poor monsoons, hampering rural India’s growth potential.”

Climate Change

The link between Indian agriculture and the El Niño is an old one. The geographer Mike Davis, in his book Late Victorian Holocausts, describes in vivid detail how a series of devastating famines followed El Niño events in the late 19th century in India and across the world, and left millions dead.

What of the future? In the years ahead, the complicating factor is, of course, climate change. Will El Niño years become more frequent or less?

A scientific report published in Nature in 2016 by Sarita Azad and M Rajeevan suggests that we could see more frequent El Niño events in the future. Further, model simulations suggest that “more frequent El Niño events could trigger more droughts over India”.

The headline effect of such droughts on agricultural production is, of course, serious enough. But such events could also trigger far-reaching shifts in the rural economy. For instance, in a paper on the effects of drought on agricultural labour by men and women, Farzana Afridi and co-authors found that after a drought, rural women are 7.1% less likely to be employed than men, but 80% more likely to seek work. Women saw a 19 percentage point greater reduction in working days than men in a drought year.

At the same time, while men are better able to substitute work lost on the farm with work off it, in rural areas, women on the whole are much less able to make that switch. “Hence, while men diversify to non-farm sector jobs to cope with droughts, women do not, even as they seek work and their real farm wage earnings (conditional on being employed on the farm) fall by 38.1%,” the authors say.

Mrutyunjay Mohapatra, director general of the IMD, told Mint in an interview recently that the impact of the El Niño on this year’s monsoon is likely to be minimal—the IMD is for now sticking to its forecast of a normal monsoon. If that happens, that’s good news. But, even if the Indian monsoon goes off well and agricultural growth is strong, that is little guarantee that El Niño won’t be back in future years, or that its effects on Indian agriculture and society won’t be more far-reaching.

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Updated: 05 May 2023, 12:51 AM IST