India Faces Economic Collapse as Worst-Ever Drought Looms

by Aman Singh

Meena isn't alone. Millions like her in the country are facing higher prices and the possible loss of basic amenities.

This year is set to break all previous records as India reels again under a drought that could leave an already sluggish economy even slower and inflation driving prices at the market out of reach. Millions of families in India's northern and central states could go hungry as the nation faces its worst drought since 1987.

The precious rains that come with the annual monsoon is vital to India's economic health, as agriculture makes up about 25 percent of the country's gross domestic product and employs some 70 percent of its more than one billion population.

Finance Minister Jaswant Singh told reporters last week that the drought was "unprecedented" and the federal government is working with the affected states on the relief measures needed, mainly for farmers and those in rural areas.

More than 150 deaths have been reported so far due to the current arid season. However, he also assured listeners, India has enough grains stocks so that the drought would not impact the exports of wheat and rice.

Meanwhile, the western India state of Rajasthan is in the grip of its worst drought in 42 years, while another seven states have been severely affected and have asked the federal government for aid. According to the Rajasthan government, up to half of the state's regular crops have not been planted.And if the rains hold off for another week or so, even crops which have been sown will dry up. Officials estimate that 2.1 million families in Rajasthan alone need food aid to survive.

The good news is that India has 60 million metric tons of food grains in reserve -- though there is some skepticism about the government's ability to distribute the stocks quickly enough. Federal and state officials are busy drawing up plans to distribute the reserve supply of grains using India's extensive rail network. Federal government officials said that $416 million and five million metric tons of food would be needed for the 12 affected states.

Vast quantities of rice and other crops are grown wherever the land is level and water plentiful. There are also large tea plantations and the opium poppy is grown, both for the legal pharmaceutical market and the illegal drug trade; cannabis is produced as well.

In recent years India's food output and distribution have been just sufficient for the needs of its enormous population; a two percent increase becomes necessary in food production each year to keep pace with population growth. The economies of hundreds of rural towns dependent on farm supplies, equipment and hardware, as well as wholesale grain markets, will be depressed as a result of the dry season.

Meanwhile, the nation's Group of Ministers has agreed "in principle" to a proposal to transport water and fodder either free of cost or at concessional ratea by special trains beginning mid-August. The group also considered the possible extension of subsidy payable to big farmers on agricultural inputs. Additional food grains would also be made available, apart from fresh bank loans of up to $1,029 to be advanced to farmers to see them through the drought conditions.

Finance Minister Jaswant Singh had told the lower house of the Indian Parliament that the Reserve Bank of India would guarantee the farmers' repayment of old loans. Further, the government may go easy on repayment of outstanding loans by state governments and extend further an overdraft facility to meet the immediate fund requirements. The government will also allow states to take fresh advances from $246.9 million lying in the Calamity Relief Fund.