India is bracing for a challenging agricultural cycle as the India Meteorological Department (IMD) predicts a “below-normal” southwest monsoon for 2026. With rainfall estimated at 92% of the Long Period Average (LPA), the potential development of El Niño conditions threatens to disrupt the rural economy, impacting everything from crop yields to consumer demand.
The monsoon is the backbone of the Indian economy for several reasons: it accounts for over two-thirds of India’s total annual rainfall; the agriculture sector employs nearly 50% of the Indian workforce; and only 55% of the net sown area is currently covered by irrigation, while the remaining 45% depends entirely on rain-fed systems.
Experts warn that a rainfall deficit during the pivotal months of August and September could have several consequences, the most important being that major kharif crops, including paddy, groundnut, soybean, and cotton, are at risk. Dr B K Singh, CMD of weather monitoring and forecasting company WeatherSys, said, “These crops need water and soil moisture during the flowering and seed-setting stages. Seeds could get shrivelled and yields may suffer if there is less rain. Large parts of Madhya Pradesh, Uttar Pradesh, Rajasthan, and Bihar are rain-fed and dependent upon rainfall for crop irrigation. Standing crops could wilt during high heat and low rainfall.”
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Ratings agency ICRA said that sub-par rainfall is “expected to weigh on the sowing of kharif crops, and consequently, agricultural output, farm cash flows, and food prices.” Amid the potential development of El Niño during the monsoon season, ICRA has projected CPI inflation for FY2027 to exceed 4.5%.
So, as crop yields are likely to suffer, consequential price hikes in cereals and pulses—directly impacting the aam aadmi—cannot be ruled out. Not only the common man, but a weak monsoon could also hurt agricultural wages and thus impact rural consumption, leading to declining margins for FMCG businesses in turn.
Government optimistic
The Ministry of Agriculture and Farmers Welfare has played down fears of a below-average monsoon impacting crop yields and hurting the economy. It has cited current storage levels across India’s water reservoirs at 127.01% of normal to highlight an available buffer for irrigation. In a statement earlier this month, the ministry said that despite the potential El Niño impact, its effect on the agriculture sector is likely to remain “relatively limited compared to previous instances.” This is particularly due to improved water availability, micro-irrigation, scientific advisories, crop diversification, and timely interventions, which have made farming more efficient and adaptable than before. The ministry has also outlined increased use of micro-irrigation, scientific advisories, and crop diversification. Besides, Agriculture Minister Shivraj Singh Chouhan has directed states to promote drought-tolerant seed varieties and activate “delayed sowing” strategies.
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Analysts divided
However, analysts have mixed views on the monsoon forecast and its impact on farm yields, rural incomes, and food prices. Analysts at the State Bank of India have dismissed immediate concerns over food security, noting that buffer stocks (380 LMT of rice) are sufficient. They have argued that food inflation has historically shown a weak correlation with total rainfall volume and instead underlined the importance of the “spatial distribution” of rain.
“Based on our study, years with relatively comfortable rainfall have still witnessed elevated food inflation, such as 98% rainfall with 8.43% food inflation in FY09 and 102% with 15.2% in FY11. Meanwhile, weaker rainfall years such as 93% (FY13) and 91% (FY19) were associated with much lower food inflation of 6.33% and 0.09%, respectively. Also, the buffer situation of foodgrains (more so on the rice front at 380 LMT) looks sufficient to thwart any untoward disruption on the kharif production front, if it occurs. As a solace, food production too has apparently little correlation with rainfall patterns, with even years of lower-than-LPA rains witnessing good output. What is important is the spatial distribution.”
Meanwhile, analysts at Bank of Baroda have maintained a cautious stance, noting that monsoons below 90% of normal have historically led to declining kharif production, even if rabi (winter) crops remain stable.
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“In 2014–15 and 2015–16, when the monsoon was less than 90% of normal, kharif production declined. However, in these years, rabi production was positive and significant. In general, the correlation between rabi and kharif growth rates was high at 0.82. The coefficient was also high for both kharif and rabi with actual monsoon performance—0.64 for kharif and 0.59 for rabi. This indicates that kharif tends to be more dependent on monsoon levels than rabi.”
Rural demand in jeopardy
As ICRA analysts have pointed out, the June quarter of FY27 may not see much change in rural demand, “aided by farm cash flows on account of the rabi harvest that started in March 2026.” Thereafter, the distribution and magnitude of southwest monsoon rainfall will remain key in determining agricultural outcomes over the next few quarters. However, a below-normal rainfall forecast could hurt rural sentiment and weaken the demand outlook.
Fears around the potential development of strong El Niño conditions in the latter half of the fiscal year, along with the negative implications of the West Asia conflict on fertiliser prices and availability, remain key near-term monitorables for the outlook of the agricultural sector.
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