The Double Whammy Of A Weak Monsoon And Rising Geopolitical Tensions

Madan Sabnavis, Chief Economist at Bank of Baroda, captures this change in tone, noting that “following the SKYMET projections of this year’s monsoon being 94% of normal, the IMD has just now forecast a 92% of long-term average rainfall for this season. This is significant as both the forecasts do highlight caution on the agricultural front.” He adds that with geopolitical tensions showing little sign of easing, “this news is not favourable for inflation,” particularly when inflation has already come in at 3.4% in March and is expected to average around 4.6% in FY27.

The structural context amplifies this concern. Agriculture now contributes roughly 15%–16% of GDP, yet continues to support close to 45% of the workforce, with a large share of cultivated land still dependent on rainfall. This imbalance ensures that even modest deviations in precipitation propagate through the economy in uneven but cumulative ways, affecting farm incomes, consumption demand, and price formation over time.

Weaker Monsoon, Geopolitical Tensions

What complicates the outlook this year is that the monsoon risk is not unfolding in isolation. As Aditi Nayar of ICRA points out, “this combination of a weaker monsoon and ongoing geopolitical tensions could push inflation higher than expected,” with inflation potentially edging past 4.5% despite comfortable reservoir levels. Her observation reflects a broader shift in the inflation narrative, where the risks are no longer singular but increasingly interconnected.

Indeed, the pressure building in the system is multidimensional. A note by Systematix Research characterises the current phase as a “double squeeze” on the rural economy, where weather-related uncertainty coincides with rising input costs.

 On one side lies the risk of weaker rainfall as El Niño conditions develop, which historically tend to disrupt the monsoon’s progression and distribution. On the other hand, geopolitical tensions, particularly in West Asia, are pushing up the cost of fertilizers, fuel, and other critical inputs, tightening margins for farmers even before the cropping season fully unfolds.

This interaction between rainfall variability and rising costs is crucial. Sabnavis underlines that the monsoon’s impact depends less on the aggregate number and more on its dynamics, including the timing of onset, the pace of progression, regional distribution, crop-specific spread, and the timing of withdrawal. Each of these factors can independently influence yields, particularly for crops such as pulses and oilseeds, which remain highly sensitive to rainfall patterns.

Early agricultural indicators are already beginning to reflect these stresses.

Summer crop acreage stands at 63.33 lakh hectares, only marginally lower than last year, but the composition reveals more caution beneath the surface. Rice acreage has declined by 1.72 lakh hectares, while oilseed sowing remains subdued. These shifts are small in absolute terms, yet they are often early signals of tighter supply conditions that tend to surface later in the form of higher prices.

Inflation data, for now, remain relatively contained, but the underlying trends are less reassuring. According to Dipti Deshpande of Crisil, headline inflation edged up to 3.4% in March from 3.2% in February, with food inflation rising to 3.9%, and fuel inflation to 1.7%, while core inflation held steady at 3.7%. This increase has occurred amid a sharp surge in global energy prices, with crude rising 45% and natural gas nearly 69% over the previous month. The limited pass-through so far reflects policy intervention rather than an absence of pressure.

Deshpande cautions that this may not persist. In her assessment, “the adverse impact of heatwaves and increased risk from a below-normal southwest monsoon assigns an upside to food inflation,” while a sustained increase in global energy prices could eventually feed into retail fuel prices and, through them, into transportation and logistics costs. This raises the prospect of second-round effects, which could push inflation beyond current projections, towards 4.7% or higher.

Fiscal Consequences

The fiscal consequences of this evolving scenario are already visible.

The fertilizer subsidy for Kharif 2026 has been raised to ₹41,534 crore, marking an 11%–12% increase, and could expand further by ₹10,000–₹25,000 crore if global prices remain elevated, and domestic output weakens. A weaker monsoon would also necessitate higher food subsidy outlays and potentially increased spending on rural employment schemes, compressing fiscal space at a time when the economy may require support.

Growth implications follow naturally from these pressures.

Rural demand, which has played a stabilising role in recent years, is closely tied to farm incomes. When rainfall becomes uncertain and input costs rise, income expectations weaken, leading to softer consumption across sectors such as consumer goods, tractors, and entry-level vehicles. Early indications already suggest a moderation in rural-linked demand, pointing to a possible slowdown in consumption momentum in FY27.

For monetary policy, the challenge is becoming more complex.

Inflation has remained below the 6% upper tolerance band for over a year, offering some room for flexibility. However, as Sabnavis notes, the evolving monsoon outlook combined with global uncertainties could push inflation higher than anticipated. If food prices begin to rise in a sustained manner, the Reserve Bank of India may find itself constrained, forced to balance inflation control against the risk of slowing growth.

Mitigating Factors

There are, however, mitigating factors.

Reservoir levels remain comfortable, foodgrain stocks are adequate, and supply management has improved over time, reducing the likelihood that a rainfall shortfall translates directly into a severe inflation shock.

Yet these buffers are conditional, dependent on how the monsoon evolves over the coming months.

The broader shift is, therefore, that of direction rather than immediacy. After a period in which favourable monsoons helped anchor inflation at 2.1% in FY26, the move to a below-normal forecast after eleven years, combined with rising global cost pressures, signals a transition to a more fragile economic environment.

In this setting, the monsoon is no longer a background variable. It is once again central to the inflation outlook, fiscal dynamics, and growth trajectory.

If rainfall distribution turns uneven and cost pressures persist, inflation could move toward the upper end of the 4.5%–5% range, fiscal pressures could intensify, and rural demand could weaken.

The IMD’s forecast, in that sense, is less a weather update and more of an early indication that the economic path in FY27 may be more complex, and less forgiving, than in recent years.

(The writer is an economics analyst and journalist. Views expressed are personal.)