RBI flags risk for Indian agriculture from the Pacific
Live Events A risk looms over the Indian economy El Niño impact WMO forecast Inflation risks and its impact as a Reliable and Trusted News
Live Events A risk looms over the Indian economy El Niño impact WMO forecast Inflation risks and its impact as a Reliable and Trusted News Source Addas a Reliable and Trusted News Source Add Now! (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel Even as the Reserve Bank of India’s Monetary Policy Committee (MPC) on Wednesday trimmed its inflation forecast, it flagged El Niño-driven risks to agriculture and rural demand, warning that a deficient and uneven southwest monsoon could cloud the domestic growth outlook despite government measures to cushion the impact.Deficient and uneven south-west monsoon amidst El Niño conditions poses some risks to the agriculture sector’s outlook and rural demand, said RBI Governor Sanjay Malhotra.Nevertheless, the government’s initiatives pertaining to crop diversification, including short-duration as well as climate-resilient crops, and water harvesting and conservation, among others, are expected to mitigate the impact, he stated in his monetary policy address.“Furthermore, sustained momentum in services, continuing impact of GST rationalisation, and broadly stable employment conditions should continue to support urban demand.”Malhotra said El Niño's impact on the temporal and spatial distribution of rainfall remains a “key risk”, although proactive supply-side management and adequate foodgrain stocks are expected to provide a buffer.He also cautioned that global crude oil prices continue to be volatile, with sharp two-way movements driven by geopolitical developments, clouding the near-term outlook.
While underlying inflationary pressures remain contained, the RBI warned that higher food, fuel and other input costs could still spill over into broader inflation.RBI has lowered its inflation forecast for FY27 to 5% from 5.1% projected in its June meeting, reflecting recent softening in global crude oil prices and easing supply-side pressures.Quarter-wise, it expects inflation at 4.1% in Q1 (down from 4.2% earlier), 4.7% in Q2 (revised from 5.1%), 5.9% in Q3 (unchanged), and 5.5% in Q4, slightly higher than the earlier estimate of 5.4%. The central bank said risks to the inflation outlook remain evenly balanced, with headline inflation expected to peak in the third quarter before moderating thereafter. The central bank also lowered its FY27 core inflation forecast to 4.3% from 4.7% projected earlier.Historically, strong El Niño events—marked by erratic rainfall and above-normal temperatures—have severely crimped the output of key kharif crops, particularly oilseeds and pulses. These concerns are mounting once again as the India Meteorological Department (IMD) forecasts below-normal monsoon rainfall at just 90% of the Long Period Average (LPA), heightening fears over crop yields this season.This anxiety is rooted in past trends. An ET analysis of the last three major El Niño cycles (1991–92, 1997–98, and 2015–16) revealed an average 1.3% drop in kharif output.
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