Representational Image-El Nino— DC File

HYDERABAD: The El Nino-induced rainfall deficit could undermine Telangana’s economic growth and put pressure on the state’s revenue collections, an expert committee appointed by the government has cautioned. The impact of poor rainfall during the southwest monsoon is expected to extend beyond agriculture, as reduced kharif output and declining farm incomes could dampen rural purchasing power, with adverse consequences for the industrial and services sectors.

The committee projected that the state’s GSDP growth, estimated at 10 to 10.7 per cent for the current financial year, could suffer a setback of 1.5 to 2 percentage points. It also warned that lower agricultural production and a contraction in cash circulation could erode government revenues and expose banks to a higher risk of non-performing assets (NPAs) due to weakening repayment capacity.

The multidisciplinary expert committee, constituted by the state government to assess the likely impact of El Nino and suggest measures to protect agriculture and allied sectors, submitted its report to the government on October 28. It has called for a comprehensive contingency plan; a special financial package and expansion of employment guarantee works to prevent a sharp contraction in rural economic activity and maintain cash circulation in villages.

Though the government achieved its revenue collection targets during the first six months of the current financial year, the committee cautioned that collections could come under pressure in the coming months as the impact of the rainfall deficit began to reflect in household spending and business activity, it said.

It recommended a special financial assistance package through direct benefit transfer (DBT) to put money directly into the hands of farmers, tenant farmers and rural artisans. The committee also called for scaling up employment guarantee works to provide additional income opportunities and ensure continuous cash flow into rural households, thereby cushioning the wider economy against the effects of the El Nino-induced drought.

Warning of a severe setback to agriculture and allied sectors, the report said declining groundwater levels and reduced storage in reservoirs and irrigation projects could restrict Rabi cultivation to just 30 to 40 per cent of the 70 lakh acres normally brought under crops during the season.

The agriculture department's advisory against water-intensive crops could further reduce paddy and other irrigated crop cultivation, affecting overall agricultural output.

The consequences would be felt across the agricultural supply chain. Rice mills and food processing units could face shortages of raw materials, while a fall in agricultural activity at market yards would hit the livelihoods of loaders, transport workers and drivers. With more than 60 per cent of Telangana's workforce dependent on agriculture and allied sectors, declining farm incomes could trigger a wider economic slowdown by weakening purchasing power and reducing business transactions in rural areas.

The committee warned that a decline in rural consumption would affect demand for automobiles, electronic goods, fast-moving consumer goods (FMCG) and other discretionary products, with a direct bearing on the state's tax revenues. It estimated that the state's share of Goods and Services Tax (SGST) collections could decline by 15 to 20 per cent if the slowdown in consumption persists.
The agriculture crisis has also started affecting the real estate sector. Agricultural land transactions have declined by around 10 per cent compared with previous levels, putting the government's annual revenue target of ₹18,000 crore from stamps and registrations at risk.

A slowdown in construction activity could compound the problem, reducing demand for cement, steel, bricks, hardware and other building materials and affecting business transactions worth lakhs of crores of rupees. The committee estimated that nearly 20 lakh workers, including construction labourers, masons and plumbers, could face uncertainty over employment if construction activity weakens.

The report cautioned that a decline in industrial production and business activity could affect the repayment capacity of borrowers, particularly those dependent on agriculture and allied sectors, increasing the possibility of banks witnessing a rise in non-performing assets (NPAs).

On the remedial front, the committee said the government should not rely exclusively on the existing employment guarantee programme to revive rural demand.

Wages paid under the employment guarantee scheme would largely be spent on essential household requirements and might not generate sufficient additional demand to sustain rural markets.


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