Coming to power with a thumping majority and on the back of big promises, the Modi Govt has completed its one year in office. While the Govt as expected, has patted itself on the back for its performance, the reaction of the opposition parties, mainly the Congress party has been quite negative. But those reactions part, Modi govt has found the going tough. What complicates and makes matters worse for this Govt is the tall promises it made in the run up to the elections, most of which it finds difficult to fulfill.
But one of the biggest worries came from the Met departments forecast about below normal rains expected in India this year. The department revised its earlier forecast of 93% rains to 88% of the Long period average, with the western region of India expected to be the worst hit. While announcing this, the Minister of Science and Technology Mr Harsh Vardhan said , I have to say this with a heavy heart that as per our revised forecast, India will receive 88 per cent of rainfall of the Long Period Average plus or minus 4 percent.” If this forecast comes true, it will be the second year in running when India will receive below normal rains. On a day when the RBI announced a 25 basis points cut in the interest rates, this announcement was met with a pronounced reaction in the Indian stock markets, with the benchmark Sensex plunging more than 600 points. The poor monsoon is expected to hit the rural economy and companies with a strong rural presence are expected to be hit by this shortfall in the monsoons. Reacting to this forecast, the rating agency CRISIL revised its GDP target for India downwards by 50 basis points to 7.4%.
Even the Reserve Bank Governor Mr Raghuram Rajan also made some statements saying that it was now left to the Govt to deal with the emerging situation and to mitigate the consequences of a deficient rainfall. On its part, the central Govt has already made a contingency plan for 580 districts in India in preparation for a lower than expected rainfall. It had successfully managed to face the deficient rainfall last year. Last year, despite a 12% deficit in rainfall, the food grain production dropped by only 3%.
This year the Modi Govt will find it difficult to walk the tightrope between good and sensible economics and pragmatic politics. The biggest advantage that this Govt enjoyed last year was a sharp fall in global crude oil prices, which resulted in lowering of the diesel and petrol prices, thereby taming inflation. It also helped the Govt to keep its current account deficit within manageable levels. This year, with crude prices already low, the Govt should not expect any such luck to come to its rescue. If the Govt will increase the minimum support price to the farmers, it will result in higher food inflation which can cost BJP politically in various state elections. The price of pulses and grains has already increased this year and given the dire monsoon forecast, Modi Govt will need some luck and out of the box thinking to handle the situation.
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