How El Niño could damage India’s economy | Explained
After the first month of this year’s monsoon ended in a massive 40% deficit, the India Meteorological Department has forecast that rainfall in July will
After the first month of this year’s monsoon ended in a massive 40% deficit, the India Meteorological Department has forecast that rainfall in July will also be “below normal” or less than 94% of what is usual for the month. “Below-normal rainfall can pose significant challenges for agriculture, water resources, hydropower generation, ecosystem sustainability, and drinking water availability,” the agency warned. The outlook for July comes on the back of weak rainfall in June. Data from the IMD showed rainfall in June was 99.5 mm against a long-period average of 165.3 mm, a fall of 39.8% from normal across all four meteorological subdivisions. The outlook comes weeks after Union Agriculture Minister Shivraj Singh Chouhan sounded the alarm, warning about the impact of a potential ‘super’ El Niño. “This could directly affect Kharif crops, particularly in rainfed regions where agriculture is heavily dependent on monsoon rains,” he told reporters on June 23, 2026. How could a poor monsoon damage India’s economy? A poor monsoon can damage the economy in three ways: it affects agricultural output, reducing the sector’s contribution to the economy; it hits rural income, denting aggregate demand; and it threatens to push up food prices, causing inflation. India came into this kharif season from a position of strength — foodgrain output in 2024-25 jumped to 357.73 million metric tonnes (MMT), up 25.43 MMT from the previous year. A weak monsoon now puts that momentum at risk. In a report, CRISIL notes that while paddy acreage is expected to expand in Punjab, Haryana and Bihar, maize acreage is expected to decline as farmers shift towards more remunerative crops. Farmers might also prefer pulses, because of lower cultivation costs and water requirements, and may choose not to plant vegetables at all.
Irrigation, MSP, procurement support and market conditions also factor in the decision-making process. This could trigger food and beverage inflation. In its June bulletin, the Reserve Bank of India warned: “An adverse south-west monsoon, if materialised, may weigh on the domestic growth-inflation outlook.” The authors noted that CPI inflation had risen to 3.9% in May 2026, up from 3.5% in April, with broad-based increases across food, fuel, and core components. The report noted that daily price data up to June 18 showed food inflation continued to rise and the prices of edible oils, potatoes, onions and tomatoes edged up. A weak monsoon, coupled with higher global food prices driven by higher fertiliser, edible oil, and shipping costs, will only push them higher. Agriculture accounts for only one-fifth of India’s Gross Value Added (GVA) but employs 46% of the workforce and supports nearly 55% of the population. “It will have a direct impact on the lives of people,” said Prof. R. Ramakumar, School of Development Studies, Tata Institute of Social Sciences. Bharat Ramaswami, Department of Economics, Ashoka University, believes farm incomes could fall by up to 10%. “The rural non-farm sector consists mostly of non-traded services such as construction. These sectors contract when agriculture is adversely affected. Industries that depend on rural demand will be affected,” he said. This stress moves into the wider economy. Automobile sales are a reliable early signal, two-wheelers and tractors are among the first sectors to feel the squeeze, followed by real estate in smaller towns and cities. Kotak Mutual Fund, in a blog, has noted that a combined El Niño-plus-drought scenario may shave 20–65 basis points off GDP growth. Compounding the pressure are pests and fertiliser supply constraints caused by the Iran war.
The BriefWire