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Cumulative rainfall remains 42% below the long-period average (LPA) as of 24th Jun’26, although the agricultural outlook is partly supported by improving reservoir levels. Live storage has increased to 33% of total capacity, above the last year's level of 32% and the 10-year average of 24%, providing an important irrigation buffer. Nevertheless, the weakness in rain-fed agriculture is reflected in the sowing pattern, with kharif acreage up 1.7% YoY but cotton (-24.9% YoY) and oilseed (-10.4% YoY) sowing remaining below last year's levels.

* Weak monsoon is likely to pose a greater risk to inflation than growth. India's agricultural structure has become more resilient, with the share of crops in agriculture GVA declining to 53% from 63% in FY12, reducing the sensitivity of overall GDP growth to rainfall shocks. However, a 42% rainfall deficit, strengthening El Niño conditions and uneven sowing continue to pose upside risks to food inflation, particularly for pulses, edible oils and vegetables. Given that food accounts for 42% of the rural CPI basket vs. 30% in the urban basket, the inflation shock is likely to be more pronounced for rural households. Accordingly, we continue to forecast real GDP growth of 6.6% and average CPI inflation of 5.2% in FY27, implying an inflation-led rural slowdown rather than a broad-based growth shock.

* The macro impact is likely to be reflected through weaker rural demand rather than a broad-based slowdown. A moderation in agricultural incomes could dampen rural consumption, creating headwinds for tractors, entry-level twowheelers, rural-focused FMCG, agrochemicals, fertilisers, consumer durables and microfinance, while urban premium consumption is expected to remain relatively resilient.

* The government has adopted a proactive approach to mitigate monsoonrelated risks. The Centre has prepared district-specific contingency plans for over 315 vulnerable districts, particularly across Maharashtra, Gujarat, Madhya Pradesh, Chhattisgarh, Telangana, Karnataka, Bihar and Uttar Pradesh, while promoting short-duration and drought-tolerant crop varieties, ensuring seed availability for re-sowing, encouraging crop diversification, and strengthening irrigation and water conservation measures to minimize production losses.

* The monsoon will determine the RBI's policy path. If deficient rainfall persists and food inflation pushes headline CPI materially above our FY27 forecast of 5.2%, triggering second-round inflationary effects, we see a possibility of up to 50bp of cumulative RBI rate hikes (at 5.75%) from Oct’26. However, if monsoon activity normalises during July and inflation pressures remain contained, the RBI is likely to keep policy rates unchanged (at 5.25%).

El Niño intensifies while monsoon progress stalls

* The subdued monsoon has largely been driven by unfavourable global weather conditions. El Niño has strengthened further, with the Niño 3.4 index rising to 1.11 as of 21st Jun’26, signaling an intensifying warming phase that typically suppresses rainfall over the Indian subcontinent.

* At the same time, the Indian Ocean Dipole (IOD) remains neutral (0.01), providing little support to offset the adverse influence of El Niño. According to meteorological assessments, the temporary pause in monsoon progression has been caused by the absence of strong low-pressure systems over the Bay of Bengal, weaker cross-equatorial moisture flows and persistent atmospheric circulation patterns that have inhibited widespread rainfall across central India.

* A prolonged weak phase during June is particularly significant because it coincides with the beginning of the kharif sowing season. Rainfall during this period determines soil moisture conditions, germination and crop establishment. While rainfall during July can partially compensate for an early deficit, delayed sowing often shortens the crop cycle and adversely affects yields, particularly for rain-fed crops

Government activates contingency plans

* The Centre has intensified Kharif preparedness amid a delayed southwest monsoon and emerging El Niño risks, with cumulative rainfall currently ~42% below normal and forecasts indicating continued weakness in the near term. The government has identified 315 potentially affected districts, including 111 high-priority districts with irrigation coverage below 25%, and has prepared district-specific contingency plans covering alternative cropping patterns, crop diversification, water management and risk mitigation measures. Particular emphasis is being placed on water conservation through repair of ponds, reservoirs, check dams and other harvesting structures, while states have been advised to prioritize drinking water availability in vulnerable regions. Farmers are being encouraged to shift toward short-duration, low-water crops, including pulses, millets and oilseeds, to reduce dependence on rainfall and minimize production risks.

* To limit the impact of a weak monsoon on agricultural activity, the government has ensured adequate availability of seeds, fertilizers and additional seed reserves for potential re-sowing requirements, while scientific advisories will be disseminated through 731 KVKs and digital platforms. Preparations are also underway to address possible fodder shortages through advance stocking and supply-chain planning. Farmer support will be strengthened through PMFBY, KCC and PM-KISAN, while dedicated monitoring mechanisms, including an El Niño Monitoring Cell, Crop Weather Watch Group and multi-tier coordination framework, will track monsoon progress, crop conditions and input availability. Despite weather-related risks, the government remains confident of achieving the Kharif 2026 food grain production target of ~176 MT and maintains that comfortable rice and wheat buffer stocks limit immediate food security concerns, although the outlook remains dependent on monsoon performance during the critical sowing period.

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