Transcript Slide 1
IMPACT OF EL NINO ON THE INDIAN ECONOMY IMPACT OF EL NINO ON THE INDIAN ECONOMY 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. So, what is El Nino? IMPACT OF EL NINO ON THE INDIAN ECONOMY 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 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. IMPACT OF EL NINO ON THE INDIAN ECONOMY Why is it in the news? IMPACT OF EL NINO ON THE INDIAN ECONOMY 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. Why is the Reserve Bank of India (RBI) worried? IMPACT OF EL NINO ON THE INDIAN ECONOMY 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 OFCURRENT EL NINOACCOUNT ON THEDEFICIT INDIAN ECONOMY 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,Hope Aids & you have understood the Grants, Official, Assistance and Pensions etc] phenomenon of El Nino and how it can impact the Indian Economy. Please give us your feedback at [email protected] DISCLAIMER The views expressed in this lesson are for information purposes only and do not construe to be any investment, legal or taxation advice. The lesson is a conceptual representation and may not include several nuances that are associated and vital. The purpose of this lesson is to clarify the basics of the concept so that readers at large can relate and thereby take more interest in the product / concept. In a nutshell, Professor Simply Simple lessons should be seen from the perspective of it being a primer on financial concepts. The contents are topical in nature and held true at the time of creation of the lesson. This is not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this material will be at your own risk. Tata Asset Management Ltd. will not be liable for the consequences of such action. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.