India could be heading into a weaker-than-usual monsoon season this year, raising concerns about inflation and the broader economy.

The India Meteorological Department has forecast below-average rainfall for the June to September monsoon period – the first such outlook in three years.

Rainfall is expected to be about 92 per cent of the long-term average, making it the lowest initial monsoon forecast in more than two decades.

EL NINO A KEY FACTOR

One of the main drivers behind the weaker outlook is El Nino, a climate pattern linked to the warming of surface waters in the tropical Pacific Ocean that typically weakens India’s southwest monsoon.

The monsoon season is a crucial part of India’s climate system, delivering nearly 70 per cent of the country’s annual rainfall. 

This water is vital for agriculture, reservoirs and groundwater replenishment.

About half of India’s population depends on agriculture for their livelihoods.

Lower rainfall can reduce crop yields, cutting farmers’ incomes and dampening rural demand in India’s largely consumption-driven economy, experts say.

“The kind of monsoon India gets (is) very important. It impacts not just the agriculture sector, but it also has a bearing on overall consumption spending in the economy and hence overall GDP growth,” said Rajani Sinha, chief economist at CareEdge Ratings, an Indian credit rating agency.

“It also impacts inflation, specifically food inflation and overall rural sentiment and rural spending which affects a whole load of other sectors,” she added.

INFLATION RISKS MOUNTING

This comes amid ongoing conflict in the Middle East that has raised concerns about disruptions to energy supplies and imports, which could drive up costs.

The Indian rupee has also come under pressure amid geopolitical uncertainty, raising worries about higher import costs and inflation.

A poor monsoon could push up food prices, which make up a significant share of India’s inflation basket.

Official data shows that food inflation rose to nearly 3.9 per cent in March, up from 3.5 per cent in February.

Rising inflationary pressures could limit the scope for interest rate cuts and prompt economists to lower growth forecasts.

Before the Iran war, CareEdge Ratings projected India’s FY27 economic growth at 7.2 per cent. It has since cut its forecast to around 6.7 per cent, citing higher oil prices and growing geopolitical risks linked to the conflict.

“On top of this, if I do juxtapose a poor monsoon, definitely it will hit growth and we will see GDP growth at around 6.5 per cent,” Sinha said.

The Indian government has said it is prepared to manage the impact of a weak monsoon.

Measures include improving water management and expanding irrigation facilities to reduce reliance on rainfall.

Source: CNA
-- Agencies