1. IMPACT OF EL NINO ON THE INDIAN ECONOMY

2. The EL Nino effect has been in the news recently with the India Meteorological Department (IMD) forecasting a 60 percent probability of El Nino this year along with a below-normal monsoon projection. IMPACT OF EL NINO ON THE INDIAN ECONOMY

3. So, what is El Nino?

4. El Nino, which means ‘little boy’ in Spanish, is a weather phenomenon characterized by unusually warm ocean surface temperatures in the central and eastern tropical Pacific. IMPACT OF EL NINO ON THE INDIAN ECONOMY

5. El Nino largely causes a drought-like situation and even excessive rains. This phenomenon which emerges after a gap of 3 to 7 years has a significant impact on climate in many parts of the world and has a warming influence on global temperatures. A strong El Nino can cause severe drought in Australia, Southeast Asia and India while drenching other regions such as the US midwest and Brazil.

6. Why is it in the news? IMPACT OF EL NINO ON THE INDIAN ECONOMY

7. The El Nino phenomenon dramatically affects the weather in many parts of the world. A strong El Nino can cause drought-like conditions. Agriculture in India depends heavily on rainfall. A poor monsoon could lower the production of crops, thereby impacting inflation and GDP growth. Agriculture is nearly 18 percent of India’s GDP. A lower agricultural output would eventually mean lower rural disposable income.

8. Why is the Reserve Bank of India (RBI) worried?

9. The RBI may have a tough task ahead as an EL Nino effect can trigger inflation resulting in further rate hikes. This could impact the investment cycle, put brakes on growth, increase EMI burden and the overall cost of living. However, not all El Nino years led to a drought in India. For instance, 1997/98 was a strong El Nino year but there was no drought. On the other hand, a moderate El Nino in 2002 resulted in one of the worst droughts. Even if El Nino occurs it may not necessarily impact the monsoon as it all depends on when the El Nino sets in. IMPACT OF EL NINO ON THE INDIAN ECONOMY

10. Let us see the formula of the Current Account Balance (CAB) CAB = X - M + NI + NCT X = Exports of goods and services M = Imports of goods and services NI = Net income abroad [Salaries paid or received, credit / debit of income from FII & FDI etc. ] NCT = Net current transfers [Workers' Remittances (unilateral), Donations, Aids & Grants, Official, Assistance and Pensions etc] CURRENT ACCOUNT DEFICIT Hope you have understood the phenomenon of El Nino and how it can impact the Indian Economy. IMPACT OF EL NINO ON THE INDIAN ECONOMY

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