While the uneven progress of the southwest monsoon has delayed kharif sowing, its impact on food inflation is likely to be limited, the Reserve Bank of India’s staff said in its July Bulletin. High public foodgrain stocks should provide some cushion against price pressures, the central bank staff said.
“The farm sector is witnessing an uneven southwest monsoon, but the impact on food inflation may be mitigated by comfortable foodgrain stocks,” they said in an article on the state of the economy.
According to data from the India Meteorological Department (IMD), India received 276.8 mm of rainfall between June 1 and July 21, which is 21% lower than normal. The IMD has projected rainfall during the monsoon season to be 90% of the long-period average, raising concerns over food inflation.
Food prices are already on the rise. Retail food inflation rose to 5.32% in June from 4.78% in the previous month. This pushed headline CPI inflation to an 18-month high of 4.38% in June, breaching the RBI’s medium-term target of 4% for the first time since January 2025.
“While monsoon performance remains important for farm sector, the dependency of agriculture on southwest monsoon has been gradually declining due to increasing irrigation coverage and decreasing share of kharif crops—which are relatively more dependent on monsoon than rabi crops—in total foodgrain production,” the RBI staff said. “Furthermore, robust procurement of wheat and rice, following the record production in 2025-26, has resulted in comfortable public foodgrain stocks.”
ROBUST ECONOMY
The Indian economy remained buoyant in June, supported by improving rural demand and firm urban demand, the RBI staff said.
“The global economy is dealing with uncertain economic environment, supply chain disruptions, and fragmented trading relationships. Amidst these uncertainties, India remains among the fastest growing major economies across the globe and has been able to sustain the momentum in economic activities through June,” the RBI staff said in the State of the Economy article in the Bulletin.
High frequency indicators for June suggested sustained economic activity amidst robust industrial performance and a resilient services sector, the article said.
India’s key external sector vulnerability indicators also remained well-anchored with foreign exchange reserves at a comfortable level, the RBI staff said. The outlook for the external sector is seen improving, aided by inflows of foreign investments, the staff added.
“The momentum of external trade sustained as reflected in high growth in exports and imports in Q1:2026-27,” the central bank staff said. “This is likely to be strengthened by the recent operationalisation of the India-UK Comprehensive Economic and Trade Agreement and progress in other bilateral trade agreements.”
“External vulnerability indicators also remained sound. Recovery of foreign investments in recent months shows a revival of confidence in the economy,” the staff said.
