The fear of a below normal monsoon in India this year has increased concerns about inflation and economic growth. The Indian Meteorological Department (IMD) has recently reduced the monsoon forecast to 90% of the long term average (LPA). This is considered to be one of the weakest monsoon forecasts in the last several years. Experts believe that if the rainfall remains less than normal or its distribution remains uneven, it can have a direct impact on agricultural production and food prices.
Pulses and oilseed crops are most at risk
The weak monsoon is likely to have the biggest impact on rain-fed farming. Crops like pulses, soybean and oilseeds are grown on a large scale in states where irrigation facilities are relatively less. Maharashtra, Karnataka, Rajasthan and Madhya Pradesh contribute a major share to the total pulse production of the country. If there is not enough rain in these areas, production may decrease, which may lead to a rise in the prices of food items.
Inflation may exceed 5%
According to economists, the average retail inflation rate in the financial year 2026-27 is expected to be around 4.9%. However, due to weak monsoon, rising prices of food items and ongoing tension in West Asia, this figure may go above 5%. In some estimates, there is a possibility of inflation reaching close to the Reserve Bank of India’s upper limit of 6%.
Crude oil prices are also under increasing pressure
Not only monsoon is the cause of inflation, but rising crude oil prices are also a cause of concern. Oil prices remain high due to the ongoing geopolitical tension in West Asia. India imports most of its crude oil needs, so rising oil prices impact transportation, production costs and ultimately consumer prices.
Growth rate may also be affected
Experts say that the impact of weak monsoon will not be limited to inflation only. Decrease in agricultural production may also put pressure on rural income and demand. This may reduce consumer spending and affect the pace of economic growth. Nearly half of India’s agricultural land is still dependent on rain, hence the performance of monsoon is considered very important for the country’s economy.
RBI’s challenge may increase
Amidst the fear of rising inflation, a new challenge may arise before the Reserve Bank of India. If food and fuel inflation increases, the chances of cutting interest rates may reduce. In such a situation, investors and policy makers will keep an eye on the progress of monsoon, food prices and the situation in the global oil market in the coming months.
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