Severe drought expected to stunt India's economic growth

Third drought in a decade worsens outlook for the once-booming economy, which has also been hit by steep interest rates, nosediving business confidence and the eurozone debt crisis.

Indian villagers carry their belongings during a flash flood of the Tawi river on the outskirts of Jammu on August 4, 2012. Some 27 people, including 19 workers at a power plant, are missing following flash floods triggered by heavy rains in three northern Indian states, officials said. AFP PHOTO/ STR
 *** Local Caption ***  155258-01-08.jpg
Powered by automated translation

NEW DELHI // India's economic growth could fall to near six percent this year with the country facing the spectre of its third drought in a decade, a top government policymaker says.

In the last few months, the outlook for the once-booming economy has worsened, hit by government policy paralysis, steep interest rates, nosediving business confidence, the eurozone debt crisis and now growing worry of drought.

"If we factor in that agriculture which will not be strong ... (growth) will be closer to six percent" for the fiscal year to March 2013, Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters in New Delhi.

His forecast, delivered Friday, is down from the 6.5 percent expansion India notched up last year, and far below the close to 10 percent expansion seen during a good part of the past decade.

It comes comes as private economists also pare their growth estimates for Asia's third-largest economy, citing concern about "deficient" monsoon rains that sweep India from June to September.

A survey of economists and industry leaders by the Associated Chambers of Commerce and Industry of India, released Saturday, said the weak monsoon and a deteriorating global situation were expected to lower growth to 6.0-6.3 percent.

The projected growth is far below the 7.6 percent expansion forecast for this year in the Congress-led government's March budget.

While around six percent growth is still much faster than most other countries, the left-leaning government says India needs much higher growth to lift the living standards of its hundreds of millions of poor.

On Thursday, the weather office said the monsoon rains were likely to be "15 percent deficient" -- bad news for farmers with over half of India's arable land lacking irrigation.

If the rains do not improve, 2012 may turn out to be another drought year in India, which is one of the world's biggest consumers and producers of food with its population of 1.2 billion, experts say.

A drought is declared if rainfall is below 90 percent of average annual levels. The monsoon so far has been more than 20 percent below average.

In 2009, India was hit by its worst drought in nearly four decades. The country also suffered a drought in 2002.

Goldman Sachs economist Tushar Poddar expects even lower expansion, saying in a new note to clients he was revising down his growth forecast to 5.7 percent from an earlier 6.6 percent.