El Niño and its Socio-Economic Impact on India
Indian Economy
- PYQs8
- Articles1
Background
El Niño is a recurring global climatic phenomenon with profound and multi-sectoral implications for India's economy, agriculture, food security, social equity, and development goals. Understanding its mechanisms and impacts is crucial for policy formulation in disaster management, economic planning, and climate adaptation.
El Niño-Southern Oscillation (ENSO) is a recurring climate pattern involving changes in the temperature of waters in the central and eastern tropical Pacific Ocean. El Niño, the warm phase of ENSO, is associated with a band of warm ocean water that develops in the central and east-central equatorial Pacific, leading to significant global weather and climate disruptions, often resulting in weaker monsoons and drought conditions in India.
Facts & tables
- El Niño Projection
- High probability (82-96%) of El Niño emergence in 2026-27.
- Monsoon Forecast
- India Meteorological Department (IMD) projects 'below normal' monsoon rainfall (92% of long-period average) for 2026.
- Economic Channels of Impact
- Heat stress reducing worker productivity, agricultural losses due to uncertain rainfall, and increased food inflation.
- Vulnerable Populations
- Disproportionately affects the informal economy, daily wage earners, and widens urban inequalities.
| Type | Reference |
|---|---|
| Conceptual area | Biogeography & Ecosystems |
| Conceptual area | Agricultural Policies & Supply Chains |
| Conceptual area | Welfare Schemes & Social Policies |
| Conceptual area | Climate Change & Conventions |
| Body | Role |
|---|---|
| India Meteorological Department (IMD) | Forecasts |
| U.S. National Oceanic and Atmospheric Administration (NOAA) | Forecasts |
| Ministry of Statistics and Programme Implementation | Data provider |
Prelims angle
Prelims angle: Conceptual understanding
Prelims angle: Terminology-based question
- El Niño: warm phase of ENSO, impacts global weather patterns.
- India: weaker monsoon, drought conditions, increased heat stress.
- Economic impact: reduced agricultural output, food inflation, lower informal sector productivity.
- Social impact: widens inequality, disproportionately affects daily wage earners and urban poor.
- Policy need: stronger climate adaptation measures, worker protection, better water management.
| Year | Framing tags |
|---|---|
| 2022 | Multi-statement analysis, Conceptual understanding |
| 2022 | Multi-statement analysis, Conceptual understanding |
| 2021 | Multi-statement analysis, Conceptual understanding |
| 2021 | Multi-statement analysis, Conceptual understanding |
| 2021 | Conceptual understanding, Cause and effect relationships |
| 2018 | Conceptual understanding, Terminology-based question |
| 2015 | Conceptual understanding, Cause and effect relationships |
| 2013 | Conceptual understanding, Cause and effect relationships |
Timeline
-
Biogeography & Ecosystems
Conceptual area
-
Agricultural Policies & Supply Chains
Conceptual area
-
Welfare Schemes & Social Policies
Conceptual area
-
Climate Change & Conventions
Conceptual area
-
Prelims 2013
Conceptual understanding, Cause and effect relationships
-
Prelims 2015
Conceptual understanding, Cause and effect relationships
-
Prelims 2018
Conceptual understanding, Terminology-based question
-
Prelims 2021
Multi-statement analysis, Conceptual understanding
-
Prelims 2021
Multi-statement analysis, Conceptual understanding
-
Prelims 2021
Conceptual understanding, Cause and effect relationships
-
Prelims 2022
Multi-statement analysis, Conceptual understanding
-
Prelims 2022
Multi-statement analysis, Conceptual understanding
-
When El Niño becomes an economic crisis
El Niño, a warm phase of ENSO, causes significant weather disruptions like weak monsoons in India, leading to reduced agricultural output, increased food inflation, lower productivity in the informal sector due to heat stress, and exacerbated socio-economic inequalities, posing a major development challenge.
See also
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Past papers
2013–2022 · 8 questions
In the news
When El Niño becomes an economic crisis
El Niño, a warm phase of ENSO, causes significant weather disruptions like weak monsoons in India, leading to reduced agricultural output, increased food inflation, lower productivity in the informal sector due to heat stress, and exacerbated socio-economic inequalities, posing a major development challenge.
Try these PYQs
Increase in absolute and per capita real GNP do not connote a higher level of economic development, if -
Economic Growth vs. Economic Development: An increase in absolute and per capita real GNP signifies economic growth, which means the overall production of goods and services in a country is expanding. Economic development is a broader concept that goes beyond just increasing production. It encompasses factors like
1. Improved living standards for citizens
2. Reduction in poverty and unemployment
3. Increased literacy and education levels
4. Improved healthcare and infrastructure If poverty and unemployment are increasing even with economic growth (GNP increase), it suggests the benefits of growth are not being shared widely. This indicates a lack of true economic development.
With reference to the Indian economy, consider the following statements:
1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.
Which of the statements given below is/are correct?
Statement 1 is incorrect. Typically, the RBI uses open market operations to sell government securities to drain money from the system and control inflation. Buying government securities would inject money into the system, potentially fueling inflation further. Statement 2 is correct. Selling dollars in the market - If the rupee is rapidly depreciating, the RBI might intervene in the foreign exchange market by selling dollars from its reserves. This increased supply of dollars in the market can help stabilize the exchange rate and slow down the depreciation of the rupee. Statement 3 is correct. Lower interest rates in the US/EU make India a more attractive destination for foreign investment, leading to a large inflow of dollars. This causes the rupee to strengthen (appreciate). To prevent the rupee from appreciating too rapidly and hurting exporters, the RBI buys the excess dollars from the market.
With reference to Indian economy, demand pull-inflation can be caused/increased by which of the following?
1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher - purchasing power
5. Rising interest rates
Select the correct answer using the codes given below.
Expansionary policies: Expansionary policies like increased government spending or lower interest rates can stimulate economic activity and consumer spending. This can lead to excess demand that outstrips supply, causing prices to rise. Fiscal stimulus: Similar to expansionary policies, fiscal stimulus through government spending injections can create an inflationary gap if it's excessive. Higher purchasing power: Higher purchasing power can contribute to demand-pull inflation. If people have more money to spend due to factors like wage increases or wealth accumulation, it can lead to increased demand for goods and services. Inflation-indexing wages: While inflation-indexing wages can contribute to a wage-price spiral in some cases, it's not necessarily a direct cause of demand-pull inflation. It can be a consequence of inflation rather than a primary driver. Rising interest rates: Rising interest rates generally act as a tool to cool down an economy and reduce inflation. They make borrowing more expensive and encourage saving, thereby reducing the money supply and aggregate demand. Therefore, the correct code is 1, 2, and 4.
Economic growth in country X will necessarily have to occur if
* Internally capital formation takes place when a country does not spend all its current income on consumption, but saves a part of it and uses it for investment to increase further production. This act of saving and investment is described as capital accumulation or capital formation. * Capital formation refers to investments in physical and human capital, such as building new factories, improving infrastructure, and educating the workforce. Increased capital allows for greater production and innovation.
India Government Bond Yields are influenced by which of the following?
1. Actions of the United States Federal Reserve.
2. Actions of the Reserve Bank of India.
3. Inflation and short-term interest rates.
Which of the statements given above is/are correct?
Statement 1 is correct: The Federal Reserve's monetary policy decisions, particularly regarding interest rates, can impact global capital flows. If the Fed raises interest rates, it can make US investments more attractive, potentially leading to some outflow of capital from India. This could affect demand for Indian government bonds and influence their yield. Statement 2 is correct: The RBI's monetary policy plays a crucial role in influencing Indian government bond yields. The RBI's actions like setting repo rates, open market operations, and cash reserve ratio (CRR) can affect the overall liquidity in the banking system. Higher liquidity can lead to lower yields, and vice versa. Statement 3 is correct: Inflation expectations and short-term interest rates are important factors for investors when considering the return on government bonds. Higher inflation expectations can lead investors to demand higher yields to compensate for the potential erosion of purchasing power. Similarly, short-term interest rates can act as a benchmark for bond yields. Therefore, all three factors significantly influence the yields of Indian government bonds.
Show 3 more PYQs
Which one of the following is likely to be the most inflationary in its effects?
Out of the given options, the most inflationary effect is likely caused by (D) Creation of new money to finance a budget deficit. Option A is incorrect: Repayment of public debt actually removes money from circulation, potentially leading to deflationary pressure. Option B and C are incorrect: Borrowing from the public (B) or banks (C) - While these options involve increasing government debt, they don't directly increase the money supply. The government essentially takes money that already exists in the economy. Option D is correct: Creation of new money is the most inflationary option. This can lead to an increase in the money supply, which can put upward pressure on prices (inflation) if not accompanied by a corresponding increase in goods and services. In essence, printing new money directly expands the money supply, potentially outpacing economic growth and leading to inflation.
A decrease in tax to GDP ratio of a country indicates which of the following?
1. Slowing economic growth rates
2. Less equitable distribution of national income
Choose the correct code:
A decrease in the tax-to-GDP ratio of a country can potentially indicate 1 only (Slowing economic growth rates). Tax to GDP Ratio: This ratio represents the total tax revenue collected by a government as a percentage of the country's GDP. It's a measure of the government's ability to raise funds through taxes. Impact of Decrease: A decrease in this ratio can have several interpretations, but it doesn't necessarily point towards a less equitable income distribution (option 2). Slowing Growth: It might indicate a slowdown in economic growth. During economic downturns, businesses and individuals tend to earn less, leading to lower tax collections. Change in Tax Policy: It could also reflect a deliberate change in tax policy, such as tax cuts or exemptions, aimed at stimulating economic activity. Inefficiency: In some cases, it might suggest inefficiencies in tax collection.
With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds (IIBs)"?
1. Government can reduce the coupon rates on its borrowing by way of IIBs.
2. IIBs provide protection to the investors from uncertainty regarding inflation.
3. The interest received as well as capital gains on IIBs are not taxable.
Which of the statements given above are correct ?
Statement 1 is correct. Inflation-indexed bonds (IIBs) typically offer a fixed real rate of return above inflation. Therefore, the coupon rates on IIBs are adjusted based on changes in inflation to maintain the real rate of return. Statement 2 is correct. Inflation-indexed bonds (IIBs) provide investors with protection against inflation because their principal and interest payments are adjusted based on changes in the inflation rate. This helps investors preserve their purchasing power. Statement 3 is incorrect. Tax exemption Currently, the interest income on IIBs is taxable in India. Capital gains tax treatment on IIBs might depend on the specific holding period and type of investor.