28 NOVEMBER 2018
Trail of destruction
The extent of damage caused by Cyclone Gaja is much worse than what was believed earlier
It is now becoming clear that Cyclone Gaja is a major disaster, and its economic impact in Tamil Nadu is comparable to that of the tsunami of 2004. The devastation suffered by tens of thousands of people in several districts of the State has been severe, going well beyond the annual storm season losses. In the initial days after November 16, when the cyclone struck, the State heaved a sigh of relief since the death toll was relatively low. But it is now clear that the suffering, the loss, and the displacement in large parts of Tiruvarur, Nagapattinam, Thanjavur and Pudukottai districts is of an enormous magnitude. Communities in the affected areas are distraught as houses have collapsed, farms lie ruined, water sources are contaminated and electricity supply remains disrupted. Many areas remain inaccessible because fallen trees have blocked roads. In its report to the Centre, the Tamil Nadu government has estimated the number of people rendered homeless at 3.7 lakh, and houses destroyed at 3.4 lakh. The cyclone has crippled agriculture and livelihoods in a fertile region, felling thousands of productive trees and killing livestock. Between 60% and 80% of the coconut trees in the region have fallen, hobbling Tamil Nadu’s farmers, who contribute a quarter of India’s coconuts with the highest unit yield. Unlike paddy or many other crops, bringing coconut plantations back to life will take years.
The top priority for the Tamil Nadu government should be to restore administrative systems and service delivery in the affected areas. Only with physical access, electricity connections and public health facilities can effective relief work be undertaken. Solar power can get public facilities running overnight. It is equally important to assure the large number of stricken farmers that there will be a moratorium on any agricultural loans that they have taken, while a fair compensation scheme is prepared. Many of them have invested in trees and livestock expecting long-term returns, but have been rendered paupers overnight. The Tamil Nadu government has given the Centre a memorandum seeking nearly Rs. 15,000 crore for restoration, rehabilitation and mitigation, besides Rs. 1,431 crore for immediate relief work. The State’s requirements should be met in full. It is also worth pointing out that farm insurance under the Centre’s Fasal Bima Yojana covers only food crops, oilseeds and annual horticultural crops, making extraordinary compensation for farmers important. The average citizen is also keen on contributing money and material to the relief effort, as the experience with the Kerala floods shows. What she wants to see is administrative efficiency in rebuilding the shattered districts. Officials should not wait for people to launch protests before coming up with a response. Cyclone Gaja has wrought terrible devastation, and the relief programme must match it in scale.
Fall in oil prices gives the rupee and the Indian economy a much-needed boost
After falling consistently against the U.S. dollar for most of this year, the rupee has managed to gain some ground over the last few weeks. It has gained almost 5% from its lowest levels reached in October. The fortunes of the rupee, which even after the recent appreciation is down about 11% since the beginning of the year, have been tightly linked to the price of crude oil in the global markets. This is no surprise since imported oil meets about 80% of India’s total demand. The value of the rupee tanked amid the uptrend in oil prices this year which lasted till early October. Since then, the rupee has gained against the dollar in tandem with the fall in global crude prices. Brent Crude has dropped by a massive 30% since early October, when a barrel cost around $86, to around $60 today. This sharp fall has been the result of a dramatic change in mood in the oil market. Investors until a few weeks ago were worried about the lack of sufficient supply in the market due to disruptions in arrivals from major producers such as Iran and Venezuela. Now, however, the markets are worried about possible oversupply as the U.S. has softened its stance against Iran and turned into the largest crude oil producer in the world with the boom in shale production. Worries about a drop in global demand due to faltering growth in major economies like China may have also contributed to the fall in prices.
The fall in global crude oil prices comes as a big relief to the Central government, which has faced increasing macroeconomic and political pressure due to rising prices. According to UBS, a drop of $10 in the price of oil can improve India’s current account and fiscal deficits by 0.5% and 0.1% of GDP, respectively. The ruling party may be pleased with falling oil prices in the run-up to the general elections next year. Fuel prices across major Indian cities have fallen significantly in the last few weeks. The Reserve Bank of India will be relieved as it will have to worry less about the rupee and oil-induced inflation. Foreign investors, who have been net sellers this year, have turned net buyers this month. This points to an increase in investor confidence in the economy as the fundamentals improve. But amid rising global uncertainties, it may not be so easy to map what lies ahead for global crude oil prices and the rupee. The December 6 meeting of the Organisation of the Petroleum Exporting Countries will make clear the response of oil producers to the sharp fall in prices. Shale companies are also likely to respond to falling prices by cutting production; the profit break-even point for shale producers, however, is anyone’s guess. India should capitalise on the relief offered by the fall in oil prices to improve its preparedness for any future jump in oil prices.