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Economy

Budget 2016: Less than 50% in Water Reservoirs, But Will a La Nina Provide A Better Monsoon?

Agricultural-Growth.jpg

In what might be heartwarming news, the exit of an El Nino and a potential La Nina situation may augur well for Indian farmers, and for overall water supply at a time when reservoir levels are low.

What is El Niño?

Agricultural production in India is affected by El Niño, an abnormal warming of the Pacific waters near Ecuador and Peru, which disturbs weather patterns around the world.

An abnormal cooling indicates a La Nina, which is quite beneficial for India in that it helps provide the basis for ample rainfall during the south west monsoon.

What’s the current scenario?

The current El Niño started around February 2015; most climate models predict a return to “neutral” conditions not before May 2016. 

There is a La Nina developing but there is no guarantee it will happen. And even if it does develop by summer , it could take six months to provide a positive impact. (the 2015 El Nino started in Feb 2015, but affected us only after August) 

An extended and strong El Niño explains why India had a deficient south-monsoon and dry weather lasting through the winter this time. 

And in fact, any change – either no-El-Nino, or a yes-La-Nina will be positive for agri-growth. Look at the graph here that shows it:

Agricultural Growth

Essentially:

  • If the El-Nino retreats and there is no La Nina, agri growth is likely to be positive, where averages are 3.7%
  • If a La Nina develops, agri growth is likely to be even higher at 8%+
  • But remember a La Nina won’t affect us till December and therefore it will be the 2017 crop that will work.

What’s the current status of water storage?

While the El Nino is regressing, it is still going to take a few months for its effects to wane. 

The current available water level in reservoirs is 51,200,000,000,000 litres or 32.45% of the total holding capacity down almost 50% from the previous year and avg. of last 10 years.

The reference levels are: For communities with a population of between 20,000 to 100,000 — 100 to 150 litres per head per day. For communities with a population of over 100,000 — 150 to 200 litres per head per day.

Water_Reservoir

Source: Ministry of Water Resources

Notes: BCM = Billion cubic metres or 1 followed by 9 zeroes, Northern Region – Himachal Pradesh, Punjab and Rajasthan, Eastern Region – Jharkhand, Odisha, West Bengal and Tripura, Western Region – Gujarat and Maharashtra, Central Region – Uttar Pradesh, Uttarakhand, Madhya Pradesh and Chhattisgarh, Southern Region – Andhra Pradesh, Telangana, AP&TG (Two combined projects in both states) Karnataka, Kerala and Tamil Nadu.

NOAA’s latest forecast assigns only a 22% probability of La Niña developing in June-July-August, going up to 50% for September-October-November. 

This means that while the El Nino will end closer to summer, the development of La Nina can take a while to develop.

What’s the Positive?

Just the receding of an El-Nino is positive news for agriculture and the rural economy. A La-Nina will be a huge added positive but will only impact us in 2017. While the agrarian part of our economy is small, more people are impacted by it. The upcoming budget might have to soothe rural voices of distress coming after a rough season; but at the same time, we should understand that the natural cyclical weather pattern change (El Nino out and La Nina probably in) will mean a natural recovery of agriculture, and that we might not need panic measures.

With 2 more days to go for the Union Financial Budget of 2016-17, we take a closer look at the Union Financial Budgets of the previous year to see how the numbers add up.

You can view the previous posts here:

Budget 2016: The Shift from Consumption Taxes to Income Tax Since 1970 in Government Revenue

Budget 2016: Securities Transaction Tax Is Only 2% of Personal Tax Collections, But Is Still Unlikely To Be Removed

Budget 2016: Will The Government Tax Long Term Capital Gains from Stock Markets?

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Disclaimer

Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion. 

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