Food inflation projected to average 6% in FY27 amid rainfall deficit concerns: CareEdge Ratings
New Delhi, July 3
Food inflation in India is projected to average around 6 per cent in the 2027 fiscal year, while the headline Consumer Price Index inflation is expected to settle at 5 per cent. A severe rainfall deficit at the start of the monsoon season is driving these projections, posing a direct threat to agricultural output and domestic food prices.
According to a report by CareEdge Ratings, monsoon rainfall between June 1 and June 29, 2026, recorded a deficit of 41.5 per cent from the longperiod average. This sharp dip raises immediate concerns over food production and overall inflation, especially since domestic edible oil inflation already stood high at 9.5 per cent in May.
"With a poor monsoon, we project food inflation to average around 6% in FY27 and CPI inflation at 5%," the report stated.
Beyond the agricultural sector, the report highlighted shifts in India's external trade. While the oil trade deficit remained close to the levels seen last year, the non-oil trade deficit widened in the fiscal year so far.
However, steady performance in services exports offered a crucial buffer, generating a higher trade surplus compared to the previous year's levels.
"We expect the support from services exports to help soften the impact of the higher merchandise trade deficit in FY27," the report noted.
The report also detailed a positive turn in foreign direct investment. Gross FDI inflows in April 2026 increased by 66 per cent year-on-year, accompanied by a decline in profit repatriation. Consequently, net FDI inflows reached USD 6.6 billion in April 2026, up significantly from USD 1.6 billion in April 2025.
Furthermore, remittances showed strong momentum. Transfers grew by 70 per cent year-on-year in April 2026, following a 31 per cent expansion in the final quarter of the 2026 fiscal year. This growth persisted despite ongoing conflict in West Asia, which is a primary source of these funds.
On the macro-financial front, the current account balance recorded a surplus of USD 4.7 billion in April 2026. However, heavy capital outflows pulled the overall Balance of Payments into a deficit of USD 6.6 billion. Meanwhile, easing geopolitical tensions outside the region helped soothe domestic bond markets.
"With the announcement of the US-Iran peace deal, fears of elevated fiscal pressures have come down," the report stated. "As a result, the G-sec yield curve has shifted down meaningfully across tenors as compared to a month ago."
CareEdge Ratings added that it expects government bond yields to find a steady range through the current fiscal year.
"We expect G-sec yields to average 6.8 - 6.9% in FY27," the report stated.
Policy measures by the Reserve Bank of India and the government are expected to support the domestic currency. Interventions regarding FCNR(B) deposits, external commercial borrowings by public sector undertakings, the expansion of the Fully Accessible Route for government securities, and targeted tax exemptions are expected to draw foreign capital and limit rupee depreciation.
"We expect the rupee to average 92-93/USD over FY27, assuming the price of crude oil averages USD 90/bbl," the report stated.
— ANI
Reader Comments
Interesting how services exports and remittances are cushioning the blow. But 41.5% rainfall deficit is alarming. We need better water management and climate-resilient crops, not just rely on NRIs sending money back.
Kal subah sabzi leke aaya tha, bhindi 60 rupaye kilo. 🥲 Aur ye report kehti hai inflation sirf 6%? Ghar ke budget pe toh zyada lag raha hai. Kuch concrete steps chahiye, jaise edible oil import duty kam karna.
Positive to see FDI up 66% and remittances surging despite West Asia turmoil. But the Balance of Payments deficit despite current account surplus shows capital flight is a worry. Hope RBI's interventions via FCNR(B) and bonds work. 🙏
US-Iran peace deal lowering G-sec yields is a silver lining. But 92-93 rupee per dollar sounds painful for importers. Middle class will suffer: petrol, dal, everything goes up. Sarkar ko kuch karna padega.
Finally some good macro news: FDI inflow jump and current account surplus. But food inflation at 6% will hit the poorest hardest. Need more focus on irrigation projects and PDS strengthening. Monsoon vagaries are a recurring nightmare. 🌾💧
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