Economic effects of drought

  • • Reduced production of food and allied food products
  • • Decreased availability of dairy and livestock products
  • • Loss to industries directly dependent on agricultural production (e.g. machinery and fertilizer manufacturers, food processors, dairies, etc.)
  • • Cost of water transport or transfer
  • • Cost of new or supplemental water resource development.
  • • Increased commodity prices
  • • Revenue losses to state, and local governments
  • • Increased demand for monetary assets and increased interest rates
  • • Reduction of economic development
  • • Decrease of gross national product and economic growth

Drought conditions curtail economic growth

Economic growth and employment will suffer in a drought. The share of in GDP is now just 18%, and barely 12% relates to crops (the rest is animal husbandry, horticulture, etc). Despite extensive irrigation, a drought will turn agricultural growth negative, as against average growth of 4.3% in the last five years. That will directly reduce GDP growth by at least 0.5%. Its indirect impact - reduced employment and reduced rural spending on good and services - may be greater. So, a drought could pull GDP growth well below the 6.7% achieved last year. But this drought may hurt growth more than past monsoon failures if it prompts rural consumers to slash spending on domestically produced items like clothing and medicines, spilling the drought's impact into the industrial sector.

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