India’s southwest monsoon has begun on a notably weak footing, with cumulative rainfall as of 21st Jun-26 running 42% below
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Current weather forecasts point to a strengthening El Nino that could evolve from weak to moderate-to strong intensity during the peak monsoon period. In this context, the IMD's forecast of a 10% rainfall deficiency for 2026 appears broadly consistent with historical experience, with risks tilted towards a weaker outcome.
The implications for the economy are significant. Reservoir levels have declined sharply, kharif sowing has commenced on a subdued note, and the most rain dependent crops of pulses, oilseeds, coarse cereals and cotton remain vulnerable. While improvements in irrigation have enhanced India's resilience, large crop and state-level disparities in irrigation persist, leaving several key agricultural regions exposed to monsoon shortfalls. From a macroeconomic perspective, a deficient monsoon could weigh on crop output and imply a subdued agricultural growth (i.e., between 0-1%) in FY27 vs. 3.0% in FY26, while also posing upside risks to food inflation. We find that the relationship between monsoon rainfall and food prices is asymmetric - rainfall deficiencies tend to generate disproportionately larger inflationary pressures than the disinflationary benefits when rainfall is in surplus, owing to inelastic nature of demand for agriculture commodities. We also acknowledge that lower energy prices post US-Iran MoU could have a non-trivial bearing on headline CPI inflation. As such, assuming crude oil price to average between USD 80-85 pb (revised lower from USD 95 pb) and a 10% deficiency in rainfall, we forecast FY27 CPI inflation at 5.1% (revised lower from 5.5% earlier).