P 201122Z AUG 09
FM AMEMBASSY NEW DELHI
TO SECSTATE WASHDC PRIORITY 7762

UNCLAS NEW DELHI 001754 
 
INFO AMCONSUL KOLKATA PRIORITY 
AMCONSUL CHENNAI PRIORITY 
AMCONSUL MUMBAI PRIORITY 
AMCONSUL HYDERABAD PRIORITY 
USDA FAS WASHDC PRIORITY 
USDOC WASHDC 
 
SENSITIVE 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD PGOV WTRO IN
SUBJECT: India's Monsoon Politics 
 
¶1.  (SBU) Summary:  The Indian government (GOI) is trying to manage 
a poor monsoon season expected to result in low yields in rice, 
sugar cane, oilseeds and other crops.  Between rising food prices 
and burdensome subsidy costs, the Food and Agriculture Minister and 
United Progressive Alliance (UPA) government face growing criticism 
from both the Left and the Right.  While trying to shift the blame 
on state governments' inability to deliver on programs for 
alternative crops and irrigation schemes, the central government has 
invoked the draconian "Essential Commodities Act" which allows it to 
seize private stocks.  It has procured sugar on the world market 
--sending global prices skyrocketing. Next GOI actions likely 
include: a broad (and expensive) social safety net for farmers 
including further farm loan waivers; a delay in the UPA's election 
promise of enacting a National Food Security law within 100 days of 
coming into power; and increasing government intervention in Indian 
agriculture and food markets.  The impact of a poor monsoon on 
overall agricultural production - while technically manageable - 
could retard India's GDP growth in 2009/10. End summary. 
 
The 2009 "Truant" Monsoon... 
-------------------------- 
 
¶2. (SBU)  Both the U.S. Department of Agriculture and the Indian 
government estimate 2009 monsoon rainfall at roughly 70-80 percent 
of "normal." Late and patchy rains are likely to result in poor 
"kharif" season crops, with rice production forecast to be hit the 
hardest. Sugar cane and oilseeds are also suffering from lack of 
rain.  The Indian Meteorological Department (IMD) has been highly 
criticized for bad forecasting this season as well as poor 
communication with farmers making critical planting decisions.  Over 
60 percent of Indian food crops depend on annual monsoon rains. The 
remaining 40 percent under irrigated cropland also depend on monsoon 
rains to replenish the water table. Falling water table levels have 
led to increased energy use to pump water from deeper (and deeper) 
wells. 
 
Leads to Harsh Criticism of Ag Minister 
---------------------------------------- 
 
¶3.  (SBU) Minister Sharad Pawar holds the dual portfolio of Minster 
of Food and Agriculture just as he did in the previous UPA 
government.  In key cabinet meetings last week and in the recent 
session of Parliament, Pawar was on the defensive, trying to explain 
why the rural sector was not better prepared to ride out a dry 
season.  Critics say Pawar neglected extension programs for farmers, 
failed to push irrigation schemes and delayed development and 
delivery of new (drought resistant) seed varieties to farmers. 
 
Government Enters the Market 
---------------------------- 
 
¶4.  (U) In an effort to control rising food price inflation, the 
Indian government has entered the world market to purchase sugar and 
pulses (peas, beans and lentils).  The Food Corporation of India and 
other parastatal trading companies are procuring essential 
commodities in significant quantities.  Sugar purchases by 
parastatals and private trade have sent world prices soaring. 
Recent media reports indicate that the GOI is keen to enter 
government-to-government deals to ensure sufficient supplies of 
pulses.  Large quantities of pulses are being imported by government 
parastatals from Canada and Burma. 
 
... Food Prices Continue to Edge Upward 
------------------------------------- 
 
¶5.  (U) Rising food prices continue to pose a serious political 
problem for the government. India's wholesale price index-based 
inflation has declined after peaking at around 13 percent one year 
ago. Food price inflation continues to hover at around 10 percent. 
According to experts, the wholesale price index-based inflation does 
not capture the full impact of food price increases as the food 
group weight in the index is only around 15 percent.  The consumer 
price index-based inflation, which is a more realistic indicator of 
the food price inflation, has been hovering at around 13 percent in 
recent months.  As food spending typically accounts for around 50 
percent of an Aam Aadmi's (common man's) family budget in India, the 
high food prices have eroded purchasing power, posing a further 
challenge to government efforts to address food and nutrition 
security. 
 
(U) In the light of a significant decline in agricultural production 
due to the poor monsoon, the GOI's Central Statistical Organization 
is likely to revise its estimate for agricultural growth down from 
the expected 3 percent. This could have a negative impact on India's 
relatively vibrant economic growth rate of 6-7 percent. In an 
emergency meeting of Chief Ministers called on August 17, the Prime 
Minister emphasized a crack-down on "hoarding and speculating" of 
 
commodities. The Finance Minister has also weighed in to assure 
Indians that drinking water supplies will guaranteed and urged 
citizens not to panic. 
 
No Exports, "Election" Stocks Held by GOI 
----------------------------------------- 
 
¶6.  (SBU) The central government is sitting on record levels of 
wheat and rice that were accumulated after two good, back-to-back 
monsoons supported by high guarantee prices.   During the run-up to 
the 2009 elections, Ag Minister Pawar oversaw massive purchases of 
wheat and rice into the state-held warehouses across the country. 
 
In fact, the Indian government has purchased over 32 million tons of 
rice and 25 million tons of wheat (roughly equal to the combined 
harvests of Argentina and Australia).  At present, exports of wheat 
and rice are banned (except for a very small amount of high-priced 
basmati rice).  Media rumors suggest that the government may ban 
exports of other food items - such as vegetables-if prices continue 
to rise. 
 
Originally, the government planned to move the accumulated 
wheat/rice stocks to below-poverty line citizens under proposed 
national food security legislation.  The Congress Party still hopes 
to fulfill an election promise of providing 25 kilograms of 
rice/wheat per month per family at a highly subsidized price of Rs. 
3/ kilo. However, until a full assessment of the new crop can be 
undertaken, the food security legislation is on hold. 
 
Blame the States.... 
------------------ 
 
¶7.  (SBU) As political pressure mounts, and food inflation creeps 
up, the Congress party has been trying to place the blame for the 
drought situation on state governments.  Lack of long term planning, 
especially for irrigation infrastructure and alternative crops are 
the two key criticisms.  From the Left, the government is fending 
off accusations of having allowed speculation in food prices. 
Citing "abnormal profits," the central government has also invoked 
the draconian Essential Commodities Act allowing the government to 
seize privately-held food stocks, if necessary. 
 
....Expand Social Safety Net Programs 
----------------------------------- 
 
¶8.  (U) Ag Minster Pawar has called a meeting of key government 
officials on August 19 to review the national situation both from a 
stocks perspective and to prepare for the second seasonal "rabi" 
crop to be planted in October/November.  In his Independence Day 
speech on August 15, the Prime Minster promised support to farmers. 
Already, large scale social safety net programs such as the flagship 
National Rural Employment Guarantee Program are being expanded 
around the country. 
 
The Food and Ag Subsidy Balloons 
-------------------------------- 
 
¶9.  (SBU) As the GOI moves to support farmers with loan waivers, 
cheap credit and inputs, it is struggling with a growing subsidy 
bill.  New steps likely to add to the GOI's $32 billion food and 
agriculture subsidy cost include a proposed further farm loan 
waiver, a diesel subsidy for irrigation and free food to drought-hit 
states. The government will soon need to take a decision on new crop 
support prices.  The official minimum support prices for fall 
harvested crops will be watched closely by both farmers and traders 
in the context of the emerging drought situation. 
 
Comment: 
--------- 
 
¶10.  (SBU) A significant decline in India's agricultural production 
following a poor monsoon exposes the vulnerability of Indian 
agriculture to vagaries of weather.  The GOI has done little long 
term work to hedge against any such significant redline in 
agricultural production.  Low or negative agricultural growth could 
temper India's overall economic growth this fiscal year, which is 
already under pressure from the global recession.  India's political 
approach to "monsoon" management in 2009 will drive up global food 
prices due to the GOI's knee jerk tendency to intervene in the 
markets. 
 
The poor monsoon and food price rises pose some short term political 
challenges for the government.  There are state assembly elections 
coming up in Maharashtra and Haryana, two politically important 
states.  It is clear from the Prime Minister's direct interventions 
that the government is feeling the heat at the moment.  All Indian 
politicians are acutely mindful of the sensitivity of the Indian 
 
voter to food prices.  In this context, Sharad Pawar is particularly 
on the hotseat because not only is he the Food and Agriculture 
Minister but also from Maharashtra and closely associated with 
sugar, which leads the list of food products with rising prices. 
But, the government can take comfort in the fact one erratic monsoon 
will not cause lasting political damage and the general election is 
still more than four years away. 
 
The UPA government remains frantic in its defense of drought 
management.  The upcoming Maharashtra State election will allow the 
media and political parties to exacerbate the price rise issue. Key 
issues like how to reinvigorate growth in the ag sector and how to 
re-orient agricultural research and education will have to wait 
until the political storm -and monsoon blues -are over. 
 
ROEMER