Zerodha Co-founder Nithin Kamath has cautioned that India could face a challenging inflation environment in 2026 if a weak monsoon driven by El Niño coincides with elevated crude oil prices amid the Iran conflict, a combination he believes could eventually push the Reserve Bank of India toward interest rate hikes.
In a post on X, the Zerodha founder described 2026 as “turning out to be a case of when it rains, it pours,” while highlighting mounting concerns around weather disruptions and geopolitical tensions. Kamath said forecasts of below-normal rainfall this year could pose a major threat to food inflation and rural incomes.
“Every few years, the Pacific Ocean warms up abnormally, and that phenomenon is called El Niño. When it happens, India’s monsoon weakens,” Kamath said, noting that the India Meteorological Department had projected rainfall 6% below normal for 2026.
He pointed out that although the shortfall may appear limited, the implications for the economy could be significant because nearly 70% of India’s annual rainfall occurs during the monsoon season, while around 60% of Indian farmers still depend on rainfall rather than irrigation systems.
“If history is any guide, we may have a terrible year ahead,” Kamath said. He added that India had recorded below-average rainfall in nearly 60% of El Niño years since 1951. Referring to 2009, he noted that monsoon rainfall had fallen to 78% of the long-period average, marking the weakest monsoon in 37 years.
A weak monsoon often hurts agricultural production, particularly crops such as rice, pulses, sugar and vegetables, which in turn can drive food inflation higher. Food prices remain a key component of India’s retail inflation basket because of their large share in household spending.
Kamath further added that the inflation threat from weather conditions was emerging at a time when global energy markets were already under stress due to escalating tensions in West Asia. He described the situation around the Strait of Hormuz as an “unholy mess,” referring to disruptions in one of the world’s most critical energy shipping routes.
“Trump’s war with Iran has effectively shut a channel that carries 20% of the world’s oil and 20% of its LNG,” Kamath said.
India remains heavily dependent on imported energy, sourcing nearly 80-90% of its crude oil requirements and close to half of its natural gas consumption from overseas markets. Sustained increases in oil prices therefore pose a significant risk to inflation and economic stability.
Kamath said the Indian crude basket averaged $114 per barrel in April and around $106 per barrel in May, levels that remain well above India’s comfort zone. Rising crude prices tend to affect the economy through multiple channels, including fuel inflation, transportation expenses, fertiliser costs and widening current account deficits.
Economists have historically viewed the combination of rising food inflation and elevated oil prices as one of the most difficult situations for the RBI because it simultaneously weakens growth while accelerating inflationary pressures.
“When food and energy prices rise together, the RBI cannot stay quiet,” Kamath said. “Beyond a point, it will have to start hiking rates, and that is when a bad situation starts to feel like a crisis.”
The RBI has largely maintained a cautious monetary policy stance over the past year as it balanced inflation concerns against slowing global growth and domestic demand conditions. However, persistently high food and fuel inflation could complicate the central bank’s policy outlook in the coming months.
Higher interest rates generally increase borrowing costs for businesses and consumers, impacting sectors such as housing, automobiles and capital expenditure. Financial markets have also become increasingly sensitive to inflation risks at a time when elevated crude prices and geopolitical tensions are already weighing on investor sentiment.
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