India’s inflation is already on rise because of multiple factors like the Middle East conflict that has led to the increase in higher crude and gas prices. Now the monsoon is adding to the worry. ICRA said that India is likely to receive a below-normal southwest monsoon in 2026 on top of the potential development of El Nino during the monsoon season that could lead CPI inflation for FY27 beyond 4.5%.

India’s CPI Inflation edged up to 3.40% in March while WPI inflation rose to 3.88%. Here is how ICRA is looking at the inflation outlook as India enters FY27.  

#1. El Nino risk may hit agriculture: ICRA 

According to ICRA, expected development of El Nino conditions during the monsoon season could lead to weaker rainfall in India and hurt agriculture. They said that while in FY26, rabi crop output like oilseeds, pulses, rice, and coarse cereals may grow by 4–7% year-on-year (YoY), EL Nino may impact FY27 output.

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“The emergence of El Nino conditions and the implication of the same for the Monsoon season in CY26, will be crucial in determining agricultural outcomes and rural demand through FY27,” ICRA said.

#2. Below-normal monsoon may hit rural demand, farm incomes: ICRA 

ICRA noted that a below-normal monsoon could hurt rural sentiment and weaken demand later in FY27. The economist noted that in Q1FY27, demand may remain upbeat due to the farm cash flows on account of the rabi harvest that started in March 2026. “Thereafter, distribution and magnitude of south western monsoon rainfall remains key in determining agricultural outcomes over the next few quarters,” ICRA noted.

#3. Low rainfall to impact farmers income and reservoirs

Lower rainfall could also impact kharif crop sowing and output leading to further push up food prices. This could also reduce farm incomes.

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Below-normal monsoon rainfall could slow the filling of reservoirs, which are currently at 47% of their full capacity. 

Iran-US conflict raises fertiliser supply concerns for India 

Along with below normal rain, India is also facing heat from the Middle East that is impacting India’s food prices and Indian agriculture sector is the Iran-US war. The conflict happening in the Middle East is raising concerns of fertilizer availability as India relies heavily on imports of certain categories of fertilisers, including Di-Ammonium Phosphate (DAP), Muriate of Potassium (MOP), followed by urea and Nitrogen (N), Phosphorus (P), and Potassium (K).

While 75% of the urea requirement is being met domestically, the domestic urea players import liquified natural gas (LNG) to run their plants and LNG supply is also facing disruption because of the closure of Strait of Hormuz.

Conclusion

ICRA warns that due to these challenges, agriculture growth in FY27 may be weaker than its current estimate of 3.0%. For FY26, the National Statistical Office (NSO) estimates that agriculture growth improved slightly to 2.4%, although it remains lower than 4.2% in FY25, when the country recorded an above-normal monsoon with rainfall at 108% of LPA.  India’s reservoir storage was at 47% of full capacity, higher than 40% last year and the 10-year average of 37%.