With the India Meteorological Department (IMD) predicting an ‘above normal’ monsoon in 2025, economists said that the outlook raises hopes for a robust harvest, easing inflationary pressures and providing a much-needed boost to rural consumption. With more than 75 per cent of the country’s annual rainfall occurring during the June-September period, a strong monsoon has direct implications for agricultural output, food prices, rural incomes, and overall economic momentum. A well-distributed and timely monsoon can ease food inflation, support agriculture output while also giving the Reserve Bank of India more headroom for accommodative monetary policy. However, this will depend not just on the ‘above normal’ monsoon but also its spatial and temporal distribution.
In the base case, Crisil estimated inflation at 4.3 per cent average this fiscal year, driven by softer food inflation vis-à-vis the last fiscal.
Earlier on April 15, the IMD predicted an “above normal” monsoon in 2025, which quantitatively could be 105 per cent of the Long Period Average (LPA). The forecast is with a model error of plus and minus 5 per cent.
Impact on inflation and crops
India’s economic outlook is poised for a potential boost, given a good monsoon is a critical driver of India’s food inflation. It directly impacts the Kharif crop season, which supplies essential commodities like rice, pulses, and oilseeds. Rajani Sinha, Chief Economist, CareEdge, said, “Given that only around 57 per cent of India’s agricultural land is under irrigation—with major states such as Maharashtra, Karnataka, Odisha, West Bengal, and Tamil Nadu reporting below-average coverage—the monsoon remains vital for sustaining agricultural activity.”
India’s retail inflation has already eased with the CPI inflation for the month of April at lowest level after July 2019, at 3.16 per cent, down from 3.34 per cent in March, largely due to decline in food prices. Inflation in the food and beverages category moderated to 2.1 per cent in March, down from 2.9 per cent in February, driven by deflation in key components such as vegetables, pulses, and spices. “A strong Kharif harvest, supported by a favourable monsoon, is expected to sustain this period of subdued food inflation,” said Rajani Sinha
However, the dependency of agriculture output from monsoon rainfall has reduced over the past decade, reflecting an increase in the share of irrigated area under cultivation (compared with being rain-fed) and horticulture assuming a larger share in total agriculture output. “Off late, spikes in food inflation have been driven more by heatwaves and uneven weather patterns,” said Aastha Gudwani, India Chief Economist, Barclays. This is true for cereals including rice and wheat which depend more on reservoir levels and temperature changes.
Vegetables, however, are one of the most volatile components of food inflation and are very price sensitive to weather shocks. Aastha Gudwani said, “While the forecast of an overall favorable monsoon is positive for food inflation, spatial and temporal distribution of rainfall would be key. Uneven weather patterns and heatwaves would be more of a monitorable, for vegetables in particular.”
An above-normal monsoon in 2024 supported healthy kharif production, leading to a sharp easing in prices of key kharif crops such as rice, while rabi pulses and wheat benefited from abundant soil moisture. Dipti Deshpande, Principal Economist, Crisil Limited, said, “A favourable monsoon this year should help keep these prices subdued. Vegetable prices are volatile and are more sensitive to weather shocks.”
Spatial and temporal distribution of rainfall would be key
While the forecast of an overall favorable monsoon is positive for food inflation, economists said that spatial and temporal distribution of rainfall would be key. Madan Sabnavis, Chief Economist at Bank of Baroda, said, “While a normal monsoon is a necessary condition for a good kharif harvest, it is not sufficient. It needs to be evenly distributed. The Deccan plateau is rainfed and vulnerable as oilseeds and pulses grown in this region in 4 states. This has to be good to ensure inflation is under control.”
Radhika Rao, Senior Economist and Executive Director, DBS Bank, echoed the same, “The geographical spread and intensity of rainfall will dictate pressure on perishables, especially vegetable prices, through the rest of Q2CY. Over the season, several other factors—including the recovery of the monsoon, spatial distribution, reservoir levels, and the sowing acreage of key crops—will determine the forward-looking food price outlook.”
Ripple effect on rural demand and economic growth
A good monsoon not only brings food price stability but also supports rural consumption. The agriculture sector employs almost 60 per cent of rural workers and a good rainfall can help support rural demand. “Despite a growing share of non-farm income in rural India, agriculture continues to play a central role in household earnings. However, it is important to note that while a bumper harvest can help contain inflation, it may also lead to a decline in market prices, potentially affecting farm incomes. Therefore, the balance between output growth and price realization remains critical for sustaining rural demand, Rajani Sinha added.
According to Barclays, rural activity bottomed out in July- September 2024 quarter and has been picking up gradually since then. “Timely rains augur well for healthy sowing, offering comfort to farm incomes eventually,” Aastha Gudwani said.
RBI’s MPC: Monsoon-driven momentum
On the monetary front, economists opined that a favorable monsoon will enhance the Reserve Bank of India’s ability to pursue an accommodative stance. With inflation trending lower, the Monetary Policy Committee (MPC) has already delivered two rate cuts totaling 50 basis points this fiscal.
Rajani Sinha said, “The RBI has already shifted its policy stance to accommodative and initiated a rate-cutting cycle, delivering a cumulative reduction of 50 basis points in policy rates so far. While India’s economic fundamentals remain resilient, persistent global headwinds continue to present challenges to growth. In this context, the moderation in inflation should offer additional comfort to the MPC, creating room for further rate cuts to bolster domestic economic momentum.”
Radhika Rao added, “A rise in food inflation on account of supply shortages could prompt the MPC to lower rates at an incremental pace, but not abandon its dovish stance.”
Looking ahead, given the current inflation trajectory, CareEdge and Crisil anticipated that the MPC may lower the policy rate by another 50 bps over the course of the current fiscal year.