At a time when the US-Iran war has driven up crude oil and fertiliser prices and raised the input costs of companies, the forecast of a below-normal monsoon in 2026 has aggravated the worries of investors.
As Mint reported, India may see one of its driest monsoons in years in 2026. Skymet has predicted rainfall at 94% of the long-period average, below the normal 96-104% range, while the India Meteorological Department (IMD) has pegged it at 92% of the 50-year average because of the El Niño effect.
Meanwhile, fertiliser prices could rise further due to the disruption in the supply of raw materials amid the US-Iran war.
Rural outlook weakens
A deficient monsoon and rising fertiliser costs can derail the rural growth momentum and fuel food inflation, damaging the favourable growth-inflation outlook of India.
“India’s rural economy faces a twin risk of monsoon deficiency and sharply rising input costs in 2026, threatening agricultural output, farmer incomes, rural demand, and food inflation,” Systematix Shares and Stocks noted.
The brokerage firm highlighted that the South-West monsoon is critical for India’s economic growth because the country’s agri sector heavily depends on these seasonal rains.
A healthy kharif harvest boosts rural incomes, resulting in higher demand for FMCGs, tractors, automobiles, two-wheelers, and consumer durables.
On the other hand, a deficient or erratic monsoon can lead to reduced kharif sowing, lower reservoir levels, weaker rabi prospects, and elevated food inflation.
Should investors be cautious?
Systematix underscored that the combination of a likely below-normal 2026 monsoon and elevated input costs for the agri sector due to the US-Iran conflict creates a challenging outlook for agricultural production, rural consumption, and inflation management.
“While the government already faces added fiscal strain from higher fertiliser and food subsidies, a deficient monsoon will amplify the burden through lower crop output, higher food prices, and greater demand for food subsidies,” said Systematix.
The Union cabinet on 8 April approved nutrient-based subsidy (NBS) rates worth about ₹41,533.81 crore for phosphatic and potassic (P&K) fertilisers for the upcoming kharif season.
The West Asia conflict and the consequent spike in crude prices have triggered uncertainty about India’s growth and inflation in FY27.
According to Manoranjan Sharma, Chief Economist at Infomerics Ratings, high oil prices, fertiliser shortages, and a potential El Niño together constitute a supply-side shock, but the impact on India is mixed rather than completely negative.
“Crude above $100/barrel fuels imported inflation, raising transport and production costs, widening the current account deficit, and straining fiscal balances. Growth may decelerate to nearly 6–6.6% but not collapse,” said Sharma.
Sharma agrees that an El Niño-led weak monsoon can impact rural demand. However, he added that strong domestic drivers, such as public capex, services exports, and resilient demand, will provide buffers.
“Policy support, including subsidies and liquidity measures, can soften the blow. Overall, 2026 may see uneven growth and volatile markets, not a broad economic downturn and all gloom and doom,” said Sharma.
According to Namrata Mittal, CFA, Chief Economist at SBI Funds Management, the risks are real and raise near term uncertainty, but they are more likely to cause growth moderation and market dispersion in 2026 than a sustained downturn.
“India remains exposed to higher crude prices given its import dependence, and a prolonged oil shock does worsen the growth–inflation trade-off. That said, the growth impact is typically modest unless crude remains elevated well above $100 per barrel for an extended period,” said Mittal.
“Our base case is for real GDP growth to moderate rather than weaken materially, from strong FY26 levels to around 6.5–7% in FY27, with nominal growth staying elevated due to higher prices,” Mittal said.
Mittal believes elevated crude oil prices, fertiliser shortage, and El Niño risk raise the probability of slower growth and more muted headline returns in 2026, but they do not point to a sustained economic or market downturn.
“Policy response, the duration of the shocks, and corporate adaptability will ultimately determine outcomes. Caution is warranted—but pessimism is not,” said Mittal.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
