Weak Monsoon and El Nino – Impact on India’s Economy

Weak monsoon and a potential super El Nino may hit farm output, rural incomes, food inflation, and GDP growth. By Vajiram Mains Team - Jul 7, 2026, 10:59 IST Weak Monsoon Latest News The India Meteorological Department has forecast below-normal rainfall in July after a 40% deficit in June, raising concerns about the impact of a weak monsoon and a potential “super” El Nino on India’s economy. Understanding the Monsoon and El Nino Connection The southwest monsoon (June-September) is the lifeline of India’s economy, delivering about 75% of the country’s annual rainfall. It supports agriculture, replenishes reservoirs, recharges groundwater, and sustains hydropower generation. El Nino is a climate phenomenon marked by the warming of surface waters in the equatorial Pacific Ocean, off the north-western coast of South America. It has a tendency to suppress rainfall over the Indian region, though the impact usually comes with a lag of over a month. A “super” El Nino refers to a particularly strong phase of this phenomenon, which can cause more severe rainfall deficits and prolonged droughts. Historically, several of India’s worst droughts have coincided with El Nino years, including 1972, 1982, 2009, and 2015. How a Poor Monsoon Damages the Economy Impact on Agricultural Output Agriculture accounts for about one-fifth of India’s Gross Value Added (GVA) but employs 46% of the workforce. Nearly 55% of the population depends on agriculture directly or indirectly. India came into the current kharif season from a strong position, foodgrain output in 2024-25 rose to 357.73 million metric tonnes, up 25.43 MMT from the previous year. A weak monsoon puts this momentum at risk, particularly for kharif crops like paddy, maize, pulses, and cotton. Impact on Rural Incomes and Demand A weak monsoon hits rural income, denting aggregate demand across the economy. Farm incomes could fall by up to 10% during a weak monsoon year. The rural non-farm sector, mainly non-traded services like construction, contracts when agriculture is affected. Industries dependent on rural demand, including two-wheelers, tractors, and real estate in smaller towns, are among the first to feel the squeeze. Food Inflation Pressures A weak monsoon threatens to push up food prices, fuelling inflation. The RBI has warned in its June bulletin that an adverse southwest monsoon may weigh on the domestic growth-inflation outlook. Data up to June 18 already showed food inflation continuing to rise, with prices of edible oils, potatoes, onions, and tomatoes edging up. Broader Economic Impact GDP Growth Concerns According to analyses by financial firms, a combined El Nino-plus-drought scenario could shave 20-65 basis points off India’s GDP growth. Cropping Pattern Shifts Paddy acreage is expected to expand in Punjab, Haryana, and Bihar. Maize acreage may decline as farmers shift to more remunerative crops. Pulses may be preferred due to lower cultivation costs and water requirements. Some farmers may choose not to plant vegetables at all. Decisions are influenced by irrigation availability, MSP, procurement support, and market conditions. Fertiliser and Supply Constraints Pest attacks in weakened crops. Fertiliser supply constraints caused by the Iran conflict. The Union Cabinet approved a Rs. 41,533 crore Nutrient-Based Subsidy for phosphatic and potassic fertilisers for the kharif season, covering 28 grades. External Sector Impact If domestic output falls short: The government may release buffer stocks and increase imports. This could widen the Current Account Deficit and put pressure on the rupee. India’s agricultural exports, which have grown at a CAGR of 8.2% between FY20 and FY25 and contribute 12% to core exports, face a threat. Lessons from Past El Nino Years The 2009 and 2015 monsoon failures illustrate how differently poor monsoons can affect the economy: 2009 and Its Aftermath Two subsequent years of rainfall stress. All-India average irrigation cover less than 45%. Crop GVA contracted 2.5% and 3.2% in FY09 and FY10, respectively. Inflation reached double digits. 2015 Experience Both 2014 and 2015 saw monsoon disruptions as El Nino moved from weak to strong. Crop GVA contracted, but the impact on inflation was muted. Reasons for controlled inflation included: Proactive food management Restrained MSP hikes Global commodity price slump Since 2000, of the 11 instances of below-normal or deficient monsoon at the all-India level, six were classified as El Nino years by the IMD, with five seeing deficient rainfall. India’s Preparedness The government has identified vulnerabilities: 315 districts are vulnerable to a poor monsoon. 111 districts across 12 States are of primary concern due to poor irrigation facilities. Reservoir Storage Status As of July 2: Storage levels across the 166 reservoirs monitored by the Central Water Commission stood at 47.725 BCM. This is lower than 78.077 BCM during the corresponding period last year. It is also below the normal storage of 48.402 BCM for this time of year. While the system can meet current requirements, a prolonged poor monsoon could strain it significantly. Structural Preparedness Experts have raised concerns about India’s disaster preparedness: Irrigation is crucial for adapting to climate change-induced water stress. India needs to move from crop insurance to ex-ante risk reduction. Investment in drought-resistant, high-yielding crops remains inadequate. Public investment in risk reduction is currently lacking. A second successive bad weather year would be significantly more damaging. Way Forward Short-Term Measures Strengthen buffer stocks to manage food supply. Monitor food inflation and take proactive measures. Support farmers in vulnerable districts with contingency plans. Manage fertiliser supply through diversified imports. Medium-Term Reforms Expand irrigation coverage, especially in rain-fed regions. Promote water-efficient crops and precision agriculture. Strengthen crop insurance with quicker settlements. Enhance weather forecasting and early warning systems. Long-Term Strategy Drought-proof the economy through structural reforms. Move from crop insurance to ex-ante risk reduction. Invest in drought-resistant, high-yielding crop varieties and ensure farmer access. Modernise water storage and management infrastructure. Diversify rural economy to reduce dependence on agriculture alone. Strengthen public investment in agricultural R&D and disaster preparedness.