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El Nino In 2023? Economic Impact On India

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El Nino

This update from the World Meteorological Organization (WMO) may worry you and affect the choice of food on your plate in the coming months. On March 1, 2023, WMO, an UN-based agency responsible for promoting international cooperation in atmospheric science and climatology, predicted that 2023 will be a year of El Nino.

The agency’s long-lead forecast has indicated 55-60% chances of El Nino from June to August. For the government and policymakers in India, it’s not a piece of good news either.

Let’s look at the economic impact of El Nino in the past to see which sectors will suffer the most.

What is El Nino?

El Nino is an unusual weather pattern in the Pacific Ocean and is associated with more rain in one part of the world and a drought-like situation in the other. The global climate depends a lot on surface water ocean temperatures, as they directly impact the rain on the earth. A warm ocean always results in higher rains around the region, so the oceanic region near the equator receives more rainfall than other parts.

In normal conditions, the wind blows the warm oceanic water in the pacific region near South America westward toward Indonesia, and the cool water below the equator rises toward the coastal surface of South America and then moves northwards.

However, when these winds are weaker and insufficient to move the warm surface oceanic water westwards, it begins to move in the opposite direction towards South America. Then it moves northwards, bringing in much rainfall around the region. While other parts of the world receive lesser-than-average rainfall that develops into El Nino-like conditions.

El Nino in India

The El Nino weather condition was first recorded or observed in 1578 by fishermen and occurs every two to seven years. During El Nino conditions, fish and other water bodies move to a cooler place or die due to the ocean’s water temperature change.

In recent times, India has experienced El Nino like conditions in 2009, 2014, 2015, and 2018. According to statistics, India has experienced drought-like conditions 60% of the time during El Nino years. The Indian Meteorological Department (IMD) has not confirmed or issued a statement regarding El Nino in 2023. And the intensity of El Nino conditions must be factored in while making any forecast.

Economic Impact of El Nino on India

If the forecast of El Nino becomes true, India will witness a spoiled southwest monsoon, which will directly affect the growth of the agriculture sector in 2023. El Nino Could Hurt India’s GDP, with every sector feeling the impact.

Let’s discuss the possible impact on the agriculture sector

During the monsoon, Kharif crops (rice, maize, cotton, oilseeds, sugar) are grown in India, and the season accounts for almost 80% of India’s total rice production. And, if you look at the total rain-fed agricultural land, it’s closer to 50% of the total cropped area in the country.

According to a government release in 2020, only 96,622 thousand hectares of cropped land had irrigation facilities in 2015-16 out of 1,97,054 thousand hectares of cropped land. However, the World Bank report suggests that nearly 40% of total agricultural land was irrigated in India in 2019. Whatever the percentage of total irrigated agricultural land in India is, the share of rain-fed agricultural land is still significant. It has the potential to impact food grain production and food inflation.

A study by ASSOCHAM in 2014 stated that a 5% deficit in rainfall due to the El Nino factor could result in a loss of ₹1,80,000 crores or 1.75% of the GDP. The study also revealed that a percentage point growth in agriculture leads to a 0.47% increase in demand for industrial goods and a 0.12% increase in demand for services. For every per cent deficit in average rainfall, the GDP will fall by 0.35%. Therefore, not just the agriculture sector but El Nino will spirally impact other sectors. The rural economy will be the worst hit, as they depend entirely on agriculture.

El Nino’s Impact on the Global Economy: An IMF Study

The International Monetary Fund (IMF) conducted a study in 2016 to analyze the macroeconomic impact of El Nino shocks between 1979 and 2013.

Considering factors such as energy and commodity prices, trade, etc., the study found that economies around Southeast Asia – India, Indonesia, Australia, New Zealand, South Africa, and others experience a short-lived fall in economic activity in response to the El Nino shock. But countries like the US, Mexico, Canada, Argentina, etc., benefit from El Nino activity due to the spillovers from other major trading partners.

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Source: IMF report

Country-wise, El Nino Impact

India: As El Nino coincides with the monsoon season, it hurts the agriculture sector and increases domestic food prices. As food has the highest weight in India’s CPI basket, the change in inflation will be higher than in other affected economies.

Australia: Experiences dry and hot summers while the frequency and severity of bushfires increase. Such conditions reduce wheat exports, thus increasing wheat prices in the international market.

Indonesia: Badly impacts the country’s economy, as the output of coffee, cocoa, and palm oil falls, pushing up their prices. The country depends on hydropower to mine. It refines Nickel, the metal used to strengthen steel. So, the production and export of the metal will take a direct hit.

United States: Wet weather around California results in higher production of almonds, avocados, lime crops, and others. Also, warm weather in the northeast and high rainfall in the south result in diminished tornado activity and hurricanes and higher real GDP growth.

Canada: Enjoys warm winters, which is good for fisheries and improves crude oil production, thus bringing in higher revenue for the country.

One can only hope for better weather patterns, reducing the likelihood of an El Nino in 2023 and that India receives adequate annual rainfall.


What is El Nino?

El Nino is an unusual weather pattern that occurs due to changes in the temperature of surface water in the Pacific Ocean, resulting in abnormal rainfall around the globe.

Is India affected by El Nino?

India is at higher risk of El Nino as it coincides with the country’s domestic monsoon season.  El Nino-like conditions happened in 2009, 2014, 2015, and 2018.

What are the sectors affected by El Nino?

Agriculture is the worst hit sector during El Nino like conditions and results in less output of food grains. Less rainfall affects every other sector of the economy.

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