Deficient Monsoon May Push CPI Up by 0.4% in FY27, Warns ICICI Bank

The report highlighted that the impact will largely be driven by rain-fed crops, which account for 6.1 per cent of the CPI basket, even as the overall food basket carries a weight of 34.8 per cent.

It noted that there is an upside risk to food inflation, which is currently estimated at 4.7 per cent, particularly as food prices are already showing signs of picking up. Data showed that food inflation averaged 3.2 per cent between January and March, compared to 7.3 per cent in 2025.

It said "there is an upside risk to food inflation estimate of 4.7 per cent driven by rain-fed crops when food inflation is picking up"

The report also warned that higher fertiliser prices and global trends could add further pressure. It pointed out that global food inflation could rise in 2026, similar to 2022 when it increased by 14 per cent.

Historically, the report mentioned that years with deficient rainfall have seen higher food inflation, averaging 5.7 per cent, compared to 4.4 per cent in years with normal rainfall. As a result, the report said there is an upside risk to the overall CPI inflation estimate of 4.5 per cent for FY27.

The India Meteorological Department (IMD) has projected a below-normal monsoon for 2026 due to a strong El Nino event. Historically, El Nino conditions have led to below-normal or deficient rainfall with around 70 per cent probability.

The report noted that deficient rainfall tends to impact agricultural output. For instance, output declined by 2.6 per cent during FY15/16, compared to an average growth of 4.4 per cent in the following five years when rainfall conditions improved.

Among crops, rain-fed categories such as coarse cereals, pulses, oilseeds and spices are expected to be the most affected, as they have lower irrigation coverage ranging between 19 per cent and 44 per cent. In contrast, rice and wheat production are less volatile due to better irrigation and food stock support.

Despite these risks, the report said the overall impact on economic growth may remain limited, as the share of crops in agriculture Gross Value Added (GVA) has declined to 53 per cent, compared to 63 per cent in 2011-12.

However, it cautioned that deficient monsoon conditions have historically had a noticeable impact on growth, even with improvements in irrigation.

The report also noted that while rainfall shortages could push up prices of rain-fed crops, the impact on cereals such as rice and wheat may remain contained due to large food stocks, irrigation coverage and government support mechanisms such as Minimum Support Prices (MSPs).

- ANI