Fears of a severe drought seem to be receding. The rains were delayed in their arrival and then seemed to be lost for a worrisome while before they made their presence felt again in mid July. Still, as of early August the monsoon was about 17 per cent in deficit compared to its normal precipitation till this period. As a result, some valid fears persist, of the consequences of a failed monsoon.
Agriculture is less rain dependent than it was in the past and agriculture is less important for the economy than it was in the past. As a result, the impact of a poor monsoon on the aggregate economy is unlikely to be severe if the rains are as deficient as they are now.
Yet, in a sense, everyone gets affected by a failure of the monsoon. Because everyone needs to consume farm products. But, different households are impacted differently. For the purpose of this discussion, it is useful to classify households into three kinds - farmer households, farm labour households and the rest, which are households that buy farm products.
The farmer household is at risk of losing a crop, the farm labour is at risk of losing employment at the farms and the buyers are at risk of shortages and consequent inflation.
Consumer Pyramids tells us the distribution of these households in 2011-12:
23 per cent of the households were primarily engaged in farming. Households engaged primarily in farming are those where a majority of the working population of the household is engaged in farming. These farmer households accounted for 24 per cent of the total population of the country.
Organised farmers accounted for 9 per cent of households and 10 per cent of the population and small farmers accounted for 14 per cent of household and the total population of the country.
The proportion of farmer households is often overstated. A discussion regarding this was presented in an earlier essay. [see].
A little over 7 per cent of the households were primarily those who worked as labourers of farms. These accounted for a little under 7 per cent of the population.
The rest of the 70 per cent households were the consumers of farm products who could face shortages and high inflation in farm products.
How will a failure of the monsoon affect these households?
Farmer households would see a fall in output because of lower sowing and/or because of a fall in the yields on their sowing. As a result, the overall agricultural output is expected to be low, quantitatively. This is expected to raise the price for agricultural products. The farmer household is likely to recover a part of the loss because of a lower output by selling the available output at a higher price.
Organised farmers are in a better position to recover their losses from this situation. And organised farmers are mostly in areas where rains have been highly deficient. Farmers of Punjab, Haryana and Rajasthan, where rains have been very poor, are mostly organised farmers.
Stress on farmer households is thus not likely to be very severe because the rains are deficient in areas where farming is better organised and is not concentrated among marginal farmers.
However, the discretionary spending power of these households is likely to be impacted.
Farm labourers are likely to be the worst hit as they are likely to lose employment through the kharif season. Since these households are largely poor, they would bear the greatest brunt of the failure of the monsoon. Low demand for this labour would depress wages. And, unless the income of these households are supported through government interventions such as the MGNREGA scheme, they run a risk of being financially stressed.
The proportion of farm labourers is high in Andhra Pradesh. One third of the households are of farm labourers here. In Maharashtra, West Bengal and Gujarat they account for 9-10 per cent. In Tamil Nadu and Karnataka their proportion is close to 7 per cent, which the national average. In other states their proportion is lower than the average.
The rest of the households would see a persistence of food inflation unless there are timely interventions to increase supplies. Who would be impacted by a rise in food inflation was discussed in an earlier article. [see]