India’s 42% monsoon deficit Vs El Nino: Why economists say growth remains manageable

Ratings agency CareEdge highlighted that reservoir levels are “better compared to past El Niño years, and robust foodgrain buffer stocks should help somewhat cushion inflationary risks. IDFC First Bank too corroborated the point and highlighted that reservoir levels are at “113% of the 10-year average.” 

Monsoon 2026 Stress Test

Can the reservoir levels offset El Nino impact?

However, reservoir levels are below last year’s levels (87% of last year), as of June 18. According to a corollary drawn by IDFC First Bank, “The last time such a high level of June deficit was seen was in FY15. The cumulative rainfall deficit (June to September) during FY15 was 12%.” 

Though the overall impact is likely to be “manageable”, CareEdge did not rule out the “possibility of localised disruptions.” Their ‘State-wise Poor Monsoon Resilience index (SPMRI)’,  based on several parameters, indicate “uneven vulnerability to poor monsoon across states.”

El Nino and agri output: Kharif sowing on track

Monsoon performance in June has been much weaker than IMD’s expectation of below normal (8% deficit). The Met Department’s second-stage forecast for the season as a whole (June to September) was a 10% deficit. Economists explained that the last instance of a very strong El Nino event was in FY16. In fact, for two consecutive years – in FY15 and FY16, India recorded a large monsoon deficit of 12% and 14%. As a result of this, the Kharif crop output saw an adverse impact. It declined by 2.3% in FY16. 

Kharif sowing in 2026: Why economists aren’t panicking yet

However, this year, despite the extremely weak start, the area under sowing shows a moderate pickup compared to last year. Crop-wise detail indicates that the rise in sowing is led by rice, coarse cereals, and pulses. Around 11% of total kharif sowing has been completed till June 19. 

Over the years, the linkage between monsoon performance and CPI food inflation has weakened due to better supply-side management. Global conditions have improved, with a decline in crude oil prices sustaining. 

While crude slipping below the psychologically important $75 per barrel level is good news, the monsoon performance in July can become the ultimate game changer, This is because from a sowing perspective, July monsoon is more important as nearly 80% of the sowing is completed by this period. The Met Department had warned that the, El Nino conditions are expected to strengthen during the monsoon season. 

Meanwhile, the Australian Bureau of Meteorology has stated that El Nino is expected to be ‘strong to very strong.’ IDFC First Bank pointed out that half of their models indicate that, “at its peak it could be among the highest observed since the 1950s. At the margin, the Indian Ocean Dipole (IOD), which is neutral, is expected to turn positive, which could provide some support to the monsoon. However, it may not be strong enough to counter very strong El Nino conditions.” 

Bracing for inflation shock or surprise?

The big question is what’s the impact on inflation? Apart from its impact on output, deficient rainfall also affects the economy through the food inflation channel.

El Niño conditions are typically associated with heatwaves and abnormal weather patterns, which can intensify inflationary pressures in perishable food items such as fruits and vegetables. In particular, tomatoes, onions and potatoes—commodities that have historically contributed to seasonal spikes in retail food and headline inflation— may face additional price pressures during such episodes. 

In terms of historical reference, food inflation kept moderating between FY14 and FY16 to 4.9% in FY16 from 12.1% in FY14. “Supply-side management kept domestic food inflation pressure under control. Moreover, global conditions were supportive, with a sharp decline in global food prices (-14.4% YoY) and a sharp decline in crude oil prices,” stated IDFC First Bank. 

This time round inflation remains on an uptrend, though. On a year-on-year basis, food inflation is trending higher in June and vegetable prices continue to rise on a month-on-month basis. This is also due to high temperatures. Prices of cereals, pulses, edible oil prices are also tracking higher, reflecting global conditions. As per IDFC First Bank’s analysis, “headline CPI inflation for June is tracking at 4.4% YoY Vs 3.9% in May.” This is led by a rise in fuel inflation and a pickup in food inflation. 

Globally, food inflation has surged to 11.6% YoY in May 2026. The change comes across rather striking when you take into account the negative trend seen till January. “This reflects the impact of the West Asia crisis on freight transportation costs and fertiliser costs,” the IDFC First Bank report highlighted. 

 India is a net exporter of agricultural output and, hence, a price setter in the majority of items, with the exception of edible oils. That said, they believe that “the uncertain global backdrop only adds to upside risk to food inflation.”

Rainfall and growth: An Important but weakening Linkage

The other big concern is how does it impact growth. After all, surging inflation and growth do not exactly go hand in hand. 

CareEdge pointed out that since 1951-52, there have been 23 years in which agricultural GVA declined in the country. 57%, or 13, of these contractions occurred during El Niño years. Overall GVA growth was also lower in El Niño years than in non-El Niño years. 

However, “there is evidence that the linkage between the growth rates of overall GVA and agricultural GVA and rainfall variability has weakened over time,” they added. 

Based on the old base year GDP, the share of crops in agriculture GVA has reduced over 10 years to 54% in FY24 vs 64% in FY14. Meanwhile, economists at IDFC First Bank pointed out that the “share of the allied sector has gradually risen to 46% in FY24 from 36% in FY14. The link between El Nino and GDP growth is less evident as the share of the agriculture sector in overall GDP has been reducing.”

That said, they believe “rural demand, which was the key support to consumption growth in FY26, could see some moderation due to an adverse monsoon.” 

Conclusion

It therefore goes without saying that a 42% deficient monsoon and strengthening El Nino does present near-term challenges for India’s agricultural output and inflation. However, the good news is that the structural linkages between El Nino, weak monsoon and macro growth have fundamentally weakened. 

Supported by a lower crude rate, healthy reservoir buffer and food grain stock, is India better insulated from these climatic shocks compared to 10 years ago? Well, we need to watch out for how July pans out.