Surging temperatures and forecasts of below-normal rainfall are adding fresh economic pressures at a time when policymakers are already grappling with elevated energy costs stemming from the West Asia conflict.
Temperatures have touched as high as 47°C across parts of northern India this week, pushing power demand to record levels as households ramp up the use of cooling appliances. At the same time, the government has projected below-normal rainfall during the crucial June–September monsoon season, raising concerns for farm output.
After remaining below the Reserve Bank of India’s 4 per cent target for much of last year—largely due to soft vegetable prices—inflation may now face upward pressure. Economists warn that a weak monsoon, combined with second-round effects from higher energy prices, could push inflation closer to 5 per cent in FY27, above the RBI’s projection of 4.6 per cent.
“The ongoing heatwave and erratic monsoon will impart upside risk to food prices that have remained well-behaved so far,” said Dhiraj Nim, economist at Australia & New Zealand Banking Group.
He added that rainfall uncertainties, along with elevated energy and input costs, could create a “perfect storm” for food prices, with inflation averaging close to 5 per cent this fiscal, according to a Bloomberg report.
A deficient monsoon could dent crop yields, hit rural incomes and dampen demand, weighing on overall growth. Lower rainfall may also force farmers to rely more on diesel-powered irrigation, increasing input costs. With crude oil prices hovering above $100 a barrel, producers may pass on higher costs to consumers.
Khushali Dutt, associate economist at Equirus Securities, estimated FY27 inflation at 4.9–5 per cent, but cautioned that risks remain tilted to the upside. “While fertiliser prices and retail fuel have so far been contained through subsidies and excise cuts, sustained high crude prices could necessitate fuel price hikes, posing a significant upside risk to food inflation,” she said.
Sakshi Gupta, principal economist at HDFC Bank, flagged risks to rural demand. “If crop sowing is impacted, the rebound in rural demand could start petering off,” she said.
Historical data support concerns around rainfall shortfalls. According to SBI Research, in 2015 and 2023 — when rainfall was below 95 per cent of the long-period average — food inflation exceeded 7 per cent while agricultural GVA growth slipped below 3 per cent.
However, some economists see mitigating factors. Sonal Varma of Nomura Holdings said strong buffer stocks of rice and wheat could cushion the impact on food prices. She added that the effect of El Niño on agricultural output has moderated over time due to improved irrigation and climate-resilient seeds.
The combined pressure of elevated food and energy costs is expected to complicate the RBI’s monetary policy trajectory. But for now, the central bank remains relatively sanguine. Deputy governor Poonam Gupta has indicated that RBI’s inflation projections already factor in a rainfall deficit of 7–9 per cent.