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Financial Express – Economists flag food inflation risk as El Nino possibility rises, say India needs a ready contingency plan

By Avalon ConsultingJune 16, 2023June 22nd, 2023No Comments

Raj Nair, Chairman at Avalon Consulting, gave his views to Financial Express on the risk of food inflation because of El Nino possibility.

Following are his insights on this topic:

Inflation is not a worry since it has fallen to close to 5 per cent and there is low danger of runaway inflation in the rest of the year. We had poor monsoons in 9 of the last 15 El Nino occurrences. It did not adversely affect in 6 other instances because El Nino was countered by a positive Indian Ocean Dipole (IOD). Sadly, this year, the IOD is likely to be neutral and will not be able to offset the ENSO.

With regards to impact on crop output, India is sitting on a high food grain inventory of 57.2 million T (wheat 31.2 million T and rice 26 million T) which is 18 per cent of the production and 21% of the domestic consumption. If food production drops due to ENSO by about 10 per cent, we could manage due to the food stocks. The other factor that often causes inflation is hoarding by traders. The Government has already announced policies to curb exports and hoarding as it is conscious of the impact of food inflation on the results of the 2024 General Elections.

Probable EL Nino Impact

He also stayed positive on the rural purchasing power and said that it will not collapse due to ENSO and in fact, non-farming rural income is set to rise in 2023-24. It may come as a surprise to many that while immediately after the pandemic, India GDP growth rate was helped by the organised sector but in past year, its growth rate has tapered off, and the informal sector (rural and urban) has completely taken over to prop India’s GDP growth rate by growing more rapidly than expected.

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