India’s long drought could have an even longer impact on its economy and exchange traded funds (ETFs). The summer-sown crop could drop by as much as 20%, but the good news is that there’s a plan to lessen the pain.

India’s Meteorological Department has estimated rainfall during the monsoon season this year will be substantially below the long-term average. This is going to  damage existing crops and reduce future plantings. The government has stepped in, however, and will rely upon imported food to even out the supply and demand equation, report Mukesh Jagota and Abhrajit Gangopadhyay for The Wall Street Journal.

Rainfall is around 26% below average, and the full impact of this won’t be known until the harvesting starts. In turn, rising food costs have surfaced, and the possibility of huge government borrowing may crowd out long-term investment, which poses major challenges for India’s economic rebound.

Kartik Goyal and Cherian Thomas for Bloomberg reports that India this month signed a free-trade accord with South Korea and the 10-member Association of Southeast Asian Nations as it attempts to reduce dependence on the recession-hit U.S. and Europe. India depends on these countries for about 40% of merchandise exports.

New markets in Africa and Latin America are being explored, as India is also extending a tax refund to exporters.

  • PowerShares India (PIN): up 57.2% year-to-date
  • WisdomTree India Earnings (EPI): up 68.4% year-to-date

For more stories about India, visit our India category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.