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Tuesday, 6 August, 2002, 11:49 GMT 12:49 UK
Drought threatens Indian economy
Farmers pluck out dry rice paddy in Gujarat
For many farmers, food and cash is running out fast

After a delay of over a month, it finally rained over much of northern and central India on Sunday, but farmers say it is too little, too late.


If the agricultural sector so much as splutters, the whole economy starts looking peaky

They say they have already suffered huge crop losses.

In Punjab and Haryana, two main wheat and rice growing states in northern India, the damage to crops has been extensive.

The central government has finally recognised that more than half of the country is in the grip of a severe drought and has decided to release assistance amounting to $340m from its special emergency fund.

Opposition angry

But the main opposition Congress Party has told Prime Minister Atal Behari Vajpayee that his coalition government is playing politics with the drought.

Congress leader Sonia Gandhi
The opposition alleges a fix
Its leader, Sonia Gandhi, met Mr Vajpayee on Monday and accused him of discriminating between those states where her party is in power and those ruled by his allies.

She also demanded that the government substantially increase the amount of aid so that the farmers do not face starvation.

For once, the Congress leader's claim could not be dismissed as mere competitive politics.

Gloomy prospects

The Ministry of Agriculture says the worst drought in a decade is affecting more than half the country.

Assam villagers abandon flooded home
In other parts of India, floods have wreaked havoc
The parched conditions have destroyed crops and cattle, and threaten to choke India's nascent economic recovery.

While Indians ponder their meteorological excess - massive flooding in Bihar and Assam, but unrelenting sun and drought in 12 states - economists fear growth could be hit.

Data for the past three months had shown the industrial sector emerging from the slowdown.

But the failure of the monsoon could affect agricultural output.

The monsoon is crucial to India's economic performance as agriculture contributes about 25% of India's GDP and employs 70% of India's one billion population.

Debt trap

If the agricultural sector so much as splutters, the whole economy starts looking peaky.


We will ensure that no-one starves in the drought-affected areas

Food Corporation of India
Recovery could be hit as rural incomes plummet after a drought.

Poor farmers usually borrow money to buy seed and fertiliser in the first place.

In a good year, with abundant rain leading to bumper crops, they can repay their loans and still make a little money.

This in turn triggers demand for goods in rural areas, boosting overall economic growth.

But when their rice, oilseeds, groundnut, soya bean and wheat crops die owing to lack of rain, farmers sink deeper into debt, rural incomes fall and demand slows down.

Interest rates

Economists say pressure is expected to mount on India's central bank, the Reserve Bank of India, to cut interest rates to shore up the recovery.

Agriculture Minister Ajit Singh
The agriculture minister says floods are worst in 10 years
"Industry had been demanding cuts in interest rates even before the monsoon failed," said economist DH Pai Panandikar.

"Now that demand will become more vocal as people try to stimulate industrial growth and offset the impact of the drought."

TK Bhaumik, an economist with the Confederation of Indian Industry, believes industry is suffering from a lack of investment and demand.

"Lowering interest rates will be important to make cheaper credit available," he said.

'No famine'

Fortunately, India's granaries are overflowing thanks to adequate rains for the past 10 years, so the spectre of famine is absent.

Farmer and cattle in Gujarat
Many farmers have no way of feeding livestock
In May, the grain reserve stood at 65 million tons, nearly four times the requirement of the country's buffer stock level.

"We will ensure that no-one starves in the drought-affected areas," said an official of the Food Corporation of India.

The government is also considering providing cash to farmers as part of food-for-work programmes.

Many farmers are already migrating to the cities in search of work.

Driven to suicide

A 60-year-old soya bean farmer from Madhya Pradesh, Om Vikas, said his cattle had also died because he was unable to find fodder to feed them.

He is working on a building site in the capital but he is frail and struggles to get through the day.

"I have no choice. If I don't earn any money to send my family, I will have no option but to sell my land," he said.

Farming families are selling their jewellery and postponing their childrens' marriages.

The crisis has already claimed its first casualty.

A farmer in Uttar Pradesh killed himself last Saturday by swallowing pesticide after his rice crop died.

 WATCH/LISTEN
 ON THIS STORY
Vijay Bhambwani, Bhambwani Securities
"We are definitely over reliant on agriculture"
See also:

02 Aug 02 | South Asia
31 Jul 02 | Business
26 Jul 02 | South Asia
17 Jul 02 | South Asia
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