Why drought matters so little

Disasters that do not occur can be as remarkable as those that do.  During most of my 37 years in journalism, droughts were major disasters that meant spiraling prices, food imports, foreign exchange shortages, and consequent political crises. So it is remarkable that India this year has suffered the worst drought for two decades, and yet there is no inflation, food shortage, foreign exchange shortage or political crisis.

In 1965-66, two successive droughts made India pathetically dependent on food aid from the US, with consequences for foreign policy. Environmentalist Bob Ehrlich wrote that India was basically unviable, and should be left to starve while food aid was diverted to other more viable countries. The lack of food and foreign exchange forced India to go hat in hand to the IMF, and devalue massively in exchange for a rescue loan. Inflation skyrocketed. In consequence the Congress Party, which enjoyed virtually monopoly rule in the centre  and states since independence, saw its Parliamentary majority slashed to danger level in the 1967 election. The precarious nature of small majorities was soon demonstrated in half of India’s states, where defectors like Charan Singh left Congress to form non-Congress coalitions. The whole political landscape changed.

Indira Gandhi clawed back the political advantage when she crushed Pakistan in the 1971 war over Bangladesh. This made her look politically unbeatable. Yet droughts in different states in three of the next four years brought her down to earth. Jayaprakash Narayan spearheaded huge demonstrations, and the Congress government in Gujarat government was toppled by mob fury. Inflation went through the roof. The  foreign exchange shortage was exacerbated by the rise of OPEC. This phase culminated in the declaration of the Emergency.

The next big drought came in 1979. Grain production fell 20 per cent, prices went through the roof, and foreign exchange became scarce (leading ultimately to another IMF rescue in 1981). After having been decimated in the 1977 election, Indira Gandhi was widely regarded as unelectable. Indeed Charan Singh split the Janata Party with her support in the belief that she could not possibly take advantage of it. Yet the drought of 1979 caused such wide hardship and resentment that she was able to win the general election in 1980 handsomely. Once again, a drought had changed the political landscape.

That was the last of the truly traumatic droughts. There were subsequent years of poor rain in 1987 and  1991. These caused some inflation and forex scarcity, but by this time the economy was significantly drought-protected by the green revolution. These poor monsoons caused much distress, but not the economic and political trauma of earlier episodes.

Not even that prepared us for the virtual irrelevance of the worst drought for two decades this year. Inflation is currently 3 per cent, actually lower than a year ago. The wholesale price index for foodgrains is up only 2.7 per cent, an astonishing performance in a drought year. Foreign exchange reserves, which have zoomed to the unprecedented height of $ 64 billion. The drought has indeed caused some starvation deaths and widespread distress in some states. This has undoubtedly had some political impact, yet it  does not dominate political discourse as in earlier decades.

The most striking demonstration of this is in Gujarat. The state suffered seriously from the poor monsoon. It is about to go to the polls. Yet the main issues in the election campaign are communal politics and corruption, not drought management.

The price impact of drought has been diminished by India’s enormous food stocks. Indeed, buffer stock managers see the drought as a blessing that will enable them to reduce their ever-rising mountain of grain. Past droughts typically led to the import of wheat, but this time we are going to export a record amount of wheat. The drought is global and has raised international wheat prices, so we may be able to export at a profit instead of a loss, as earlier. Far from eroding our forex reserves, the drought  might actually augment them through record wheat exports. GNP is expected to rise by up to 5 per cent per year, whereas it fell in major droughts of the past.

Why? Part of the credit goes to the green revolution. But a greater part goes to economic reform, which started in the 1980s and accelerated in the 1990s. In the mid-1980s the share of exports in our GDP was just 4.5 per cent. Today, inclusive of software exports, it exceeds 10 per cent. The opening up of the economy has led to explosive export growth of software and IT-enabled services. Despite a major liberalization of imports and the capital account, forex shortages are a thing of the past.

Liberalisation has accelerated growth in industry and services. In consequence, the share of agriculture in GDP has fallen to barely 25 per cent, half its share some decades ago.  Foodgrain production now accounts for just 12 per cent or so of GDP.

In earlier decades, agro-based industries like cotton textiles, jute and sugar accounted for a major chunk of industrial output, and rain-dependent. Today the share of these agro-based industries has fallen sharply, while that of engineering and chemicals has risen fast.

Once upon a time, drought-proofing was thought to mean extra irrigation, high yielding varieties and buffer stocks. Today, we realize that drought-proofing means much more. It means inducing rapid economic growth that reduces the share of agriculture in GDP, creates a competitive economy, and harnesses exports for prosperity instead of depending on foreign aid and food aid.

What do you think?