After the primary month of this 12 months’s monsoon ended with an enormous deficit of 40%, the India Meteorological Division has predicted that July’s rainfall may also be “beneath regular”, i.e. lower than 94% of regular. “Beneath-normal rainfall might pose important challenges to agriculture, water sources, hydropower technology, ecosystem sustainability, and consuming water availability,” the company warned. The outlook for July relies on the backdrop of decreased rainfall in June.
In line with IMD information, rainfall in June was 99.5 mm towards the long-term common of 165.3 mm, 39.8% beneath regular throughout all 4 climate classes. The outlook comes weeks after Union Agriculture Minister Shivraj Singh Chouhan sounded the alarm in regards to the affect of a possible “tremendous” El Niño. “This might have a direct affect on kharif crops, particularly in rain-fed areas the place agriculture is extremely depending on monsoon rains,” he instructed reporters on June 23, 2026.
What sort of injury will a poor monsoon trigger to the Indian financial system?
A poor monsoon can injury the financial system in 3 ways: It impacts agricultural manufacturing and reduces the contribution of the agricultural sector to the financial system. It hits rural incomes and reduces mixture demand. This might push up meals costs and trigger inflation.
India entered this kharif season in a very good place. Meals grain manufacturing in 2024-2025 jumped to 357.73 million tonnes (MMT), a rise of 25.43MMT over the earlier 12 months. At the moment, the weak monsoon is placing its energy in danger.
CRISIL mentioned in its report that whereas paddy acreage is anticipated to broaden in Punjab, Haryana and Bihar, maize acreage is anticipated to say no as farmers shift to extra worthwhile crops. Farmers choose legumes due to their decrease cultivation prices and water necessities, and should select to not develop greens in any respect. Irrigation, MSP, procurement assist and market circumstances may also issue into the decision-making course of.
This might result in meals and beverage inflation. “If southwest monsoon headwinds materialize, they may weigh on the home progress and inflation outlook,” the Reserve Financial institution of India warned in a June report.
The authors famous that CPI inflation rose to three.9% in Might 2026 from 3.5% in April, with broad will increase throughout meals, gasoline and core parts. The report famous that every day worth information as much as June 18 reveals meals inflation continues to rise, with costs for edible oil, potatoes, onions and tomatoes rising barely.
A weak monsoon, mixed with increased world meals costs as a consequence of increased fertilizer, cooking oil and transportation prices, will push costs additional increased.
Agriculture accounts for under one-fifth of India’s gross worth added (GVA) however employs 46% of the workforce and helps practically 55% of the inhabitants. “It is going to have a direct affect on individuals’s lives,” mentioned R. Lakmamal, professor of growth on the Tata Institute of Social Sciences.
Bharat Ramaswamy, professor of economics at Ashoka College, believes farm revenue might fall by as much as 10%. “The non-agricultural sector in rural areas is dominated by non-traded providers reminiscent of development. If agriculture is adversely affected, these sectors will shrink. Industries that rely upon rural demand might be affected,” he mentioned.
This stress ripples all through the financial system. Automobile gross sales are displaying dependable early indicators, with two-wheelers and tractors being among the many first sectors to really feel the squeeze, adopted by actual property in smaller cities and cities. Kotak Mutual Fund mentioned in a weblog submit that the mixed El Niño and drought situation might cut back GDP progress by 20-65 foundation factors.
Pests and fertilizer provide restrictions brought on by the Iran battle have additional exacerbated the strain. The Union Cupboard authorized a nutrient-based subsidy of Rs 41,533 crore for phosphate and potash fertilizers in the course of the kharif interval masking 28 grades. If manufacturing nonetheless falls quick, the federal government should launch buffer shares and import main merchandise, widening the present account deficit and placing strain on the rupee.
“The hazard in 2026 is {that a} weak monsoon coincides with the result of the West Asian battle,” Professor Ramakumar mentioned, referring to Prime Minister Modi’s name in Might to restrict gold purchases and worldwide journey to scale back stress on India’s international trade reserves.
India’s agricultural exports additionally face threats. “Agricultural exports contributed 12% to India’s core exports, registering a CAGR of 8.2% between FY2020 and FY2025. This too is dealing with threats,” mentioned Dipti Deshpande, chief economist, CRISIL.
How did El Niño have an effect on the financial system?
Traditionally, El Niño has posed important dangers. A few of India’s worst droughts occurred within the El Niño years of 1972, 1982, 2009 and 2015. “Out of 11 instances of below-normal or poor monsoons on the pan-India stage since 2000, six have been categorized as El Niño years by IMD. Of those, 5 have been poor in rainfall,” Deshpande mentioned.
The failures of 2009 and 2015 illustrate the disparate results of a poor monsoon on the financial system. “Rainfall stress within the subsequent two years and common irrigation protection throughout India being lower than 45 per cent led to a decline in agricultural manufacturing worth. Crop GVA contracted by 2.5 per cent and three.2 per cent in FY09 and FY10, respectively. Inflation was in double digits,” she mentioned.
El Niño circumstances modified from weak to sturdy in 2014 and 2015, with monsoon disruptions seen in each years. Crop GVA contracted, however the affect on inflation was totally different.
It identified that in contrast to 2009, when meals inflation spiked, inflation in 2015 was suppressed regardless of the failure of the monsoon as a consequence of aggressive meals administration, restrained MSP hikes and weak world commodity costs.
In line with Equilus Securities, the typical kharif manufacturing loss has fallen from 17% firstly of the El Niño outbreak (FY2003 and FY2010) to simply 1.4% since FY2015. Nonetheless, the report factors out that the extended GVA of agricultural merchandise is only one.3% on common in El Niño years, in comparison with 5.5% in regular years, so the extended interval remains to be inflicting important injury. “Two consecutive years of dangerous climate will trigger extra injury,” Professor Ramaswamy mentioned.
Can India ‘drought proof’ its financial system?
Agriculture Minister Shivraj Singh Chouhan’s correspondent raised vital information factors. 315 districts are weak to poor monsoon circumstances, of which 111 districts in 12 states are the most important concern as a consequence of poor irrigation amenities. With greater than half of India’s cultivated land nonetheless rain-fed and water tables falling, the affect of the monsoon is placing added strain on an already harassed system.
Prof Ramakumar mentioned India wanted to “shield its financial system from drought”. He mentioned the nation wants to maneuver from crop insurance coverage to proactive threat mitigation. “We have to take note of insurance policies and interventions that cut back the dangers themselves. That requires public funding, which is missing,” he mentioned. He added that India wants sufficient drought-tolerant and high-yielding crops, and farmers must have entry to them. “We’re very poorly ready for disasters as a result of we haven’t invested sufficient in any of those,” he mentioned.
“India does spend numerous sources on crop insurance coverage, however it would not spend cash on assessing how the advantages attain farmers. You’ll be able to’t depend on crop insurance coverage alone. The federal government may also want to supply drought aid,” Professor Ramaswamy mentioned.
