Good rains will feed India but prolong farm crisis

By Biman Mukherji and Himangshu Watts - Analysis

NEW DELHI (Reuters) - A forecast of normal monsoon rains for India has calmed fears of food shortages and galloping inflation, but another year of good rains may only prolong the deeper problems that haunt the languishing farm sector.

Rapid economic growth and better wages, powered by nearly two decades of liberal reforms that have made India's economy the third-largest in Asia, have fuelled demand for farm products at a time when output has stagnated.

At the same time, dwindling global stocks of key staples like wheat and rice, growing Asian demand and government mandates to produce crops for fuel have stretched the world's ability to feed itself.

Analysts say India's rain-dependent farm sector, which has seen no reform and only sluggish growth, needs urgent investment in irrigation and technology to prevent food shortages in the country where about two-thirds of the people and a fifth of its economy depend on agriculture.

"We are living hand to mouth as our total consumption is more or less equal to our output and stocks. If we have a single year of bad rains, we will have to import at high prices," said D.P. Singh, president of the All India Grain Exporters Association.

The government on Wednesday forecast near-normal monsoon rains, which could lift output and rural incomes, but analysts and traders say India's food security is precariously balanced and estimates are not always accurate.

"A great deal will depend on (the) coming monsoon. If rains are good then the situation will normalize, otherwise it will lead to a bigger crisis," said B.B. Bhattacharjee, an economist and vice chancellor of New Delhi's Jawaharlal Nehru University.

But a bigger crisis could be exactly what India needs.