Below-normal monsoon may lift inflation and impact growth in FY27: Report
Mumbai, May 26
India's macroeconomic outlook for FY27 could be influenced significantly by monsoon performance, with below-normal rainfall expected to create upward pressure on inflation and affect growth momentum, according to a report by CA Tapan Doshi, smallcase manager and Founder of Thoughtful Investors Research LLP.
The report states that the India Meteorological Department (IMD) has forecast monsoon rainfall at 92 per cent of the Long Period Average (LPA), which is classified as below normal. It notes that this raises concerns around food inflation, rural demand recovery and the overall interest rate outlook.
According to the report, nearly 55 per cent of India's net sown agricultural land is rain-fed, making monsoon patterns critical for agricultural output, rural income and supply chains. Agriculture, which contributes around 15-16 per cent to India's GDP and supports nearly 45 per cent of the population, remains highly dependent on rainfall conditions.
The report adds that uneven or delayed rainfall during key sowing periods could impact crops such as rice, pulses, sugarcane, soybean and oilseeds, potentially affecting agricultural productivity and food availability.
It further highlights that food inflation, which accounts for nearly 46 per cent of the Consumer Price Index (CPI) basket, has already been witnessing upward pressure in recent months. Any supply disruption due to weak monsoon conditions could add to broader inflationary trends, particularly in vegetables and essential commodities.
"If rainfall remains below expectations during the peak monsoon months, headline inflation could accelerate meaningfully in the second half of FY27," the report noted.
The report also states that rising food inflation may influence the Reserve Bank of India's monetary policy stance and could delay expectations of interest rate easing.
On growth, it estimates that India's GDP could remain around 6.8 per cent-6.9 per cent under normal monsoon conditions, but may moderate to around 6.5 per cent if rainfall remains weak, mainly due to softer rural demand and lower agricultural output.
It further notes that rural recovery in FY27 will depend on monsoon stability, as favourable rainfall typically supports farm incomes, rural employment and consumption across sectors such as FMCG, automobiles, fertilisers and microfinance.
Financial markets are also expected to track monsoon developments closely, with rainfall patterns historically influencing inflation expectations, bond yields and sectoral performance linked to rural demand.
The report adds that while rural-facing sectors may remain sensitive to weather conditions, government-driven sectors such as infrastructure, defence, railways and capital goods are expected to remain relatively stable due to continued public spending and urban demand.
— ANI
Reader Comments
As a housewife in Bengaluru, I already see vegetable prices soaring every summer. If monsoon is weak, inflation will hit our monthly budget hard. The report says food inflation is 46% of CPI - that means every rupee we spend on dal, rice, or sabzi will matter more. I hope the RBI doesn't hike interest rates again, because our home loan EMI is already too high. 🥦📈
This report is a reality check. We keep talking about GDP growth but forget that 45% of our population depends on agriculture. If monsoon fails, rural demand will collapse - impacting FMCG, auto, and even microfinance sectors. The report predicts GDP could fall to 6.5% from 6.8-6.9% - that's a significant hit. Time for the government to push hard on irrigation projects and crop diversification. 💧🌾
Living in urban India, we often ignore how monsoon impacts our daily lives. But this report connects the dots well - weak monsoon = high food inflation = delayed RBI rate cuts. I work in IT and was hoping for lower home loan rates next year. Looks like that dream might be delayed. The government should focus more on water conservation and drought-resistant crops. 🌱💧
As a retired bank officer who has seen many monsoons, I can say this report is accurate but lacks urgency. Below-normal monsoon isn't new - we had it in 2015 and 2018 too. The real issue is our over-dependence on rain-fed agriculture despite having the world's largest irrigation network. The government should allocate more funds to micro-irrigation and watershed management rather than just reacting to forecasts. 🚜💧
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