India could face higher inflationary pressures in FY27 as deficient monsoon rains and persistent heatwave conditions threaten agricultural output across major crop-producing regions, economists have warned.
In its latest monsoon forecast, the India Meteorological Department (IMD) projected rainfall during the June-September season to remain 10% below normal, or around 90% of the long-period average (LPA). The revised estimate is weaker than the IMD‘s earlier forecast of rainfall being 8% below normal.
Meteorologists have also warned of prolonged extreme heat conditions in several parts of the country, raising concerns over food production, crop sowing and rural demand.
According to the experts, the twin impact of deficient rainfall and heatwaves could push headline retail inflation above 5% during FY27, primarily driven by rising food and energy prices.
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Food inflation likely to remain elevated
According to a Yes Bank report, inflation is likely to remain within the Reserve Bank of India’s (RBI) tolerance band, but rising price pressures and slowing growth will pose challenges for policymakers. It expects the RBI to keep interest rates and its policy stance unchanged at the upcoming June meeting to assess the impact of recent price increases.
“Balance of risks remains crucial; our inflation estimates indicate headline CPI to average around 5.0-5.2% while growth is expected to slow sharply to 6.6% in FY27 from 7.6% estimated for FY26,” the report said.
According to Yes Bank, the domestic economy continues to face risks from geopolitical tensions and volatile commodity prices.
Manufacturing and agricultural input costs have also increased, complicating the RBI’s task of balancing inflation control with growth support.
The report sees only a small chance of a rate hike in June, saying the RBI is likely to wait and evaluate the second-round effects of higher prices. It expects a cumulative rate hike of 75-100 basis points to begin in August or October after the monsoon’s impact on food prices becomes clearer.
According to Yes Bank, agriculture remains vulnerable to potential weather disruptions, with the possibility of an El Nino cycle affecting crop output and rural demand. Exporters are also facing weaker global demand and elevated freight and insurance costs.
ICICI Bank flags risks to food production
Economists at ICICI Bank also warned that higher food and energy prices could keep retail inflation elevated.
According to a recent report, prices of meat, fish, fruits, edible oils and processed food products have already started rising. Perishable items such as vegetables and fruits may witness further price increases due to extreme summer temperatures across northern and central India.
The report noted that there is now an 84% probability of below-normal to deficient rainfall this monsoon season, compared to 66% in the IMD’s earlier long-range forecast.
With rainfall expected to remain below normal across northwestern, central and southern India, economists warned of risks to kharif crop production, particularly in rain-fed agricultural regions.
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Rain-fed crops most vulnerable
About 40% of India’s total crop production comes from the Monsoon Core Zone, which is expected to receive lower rainfall this year.
Experts say rain-fed crops such as pulses, coarse cereals, oilseeds and spices could face the biggest impact if rainfall remains weak.
Paddy production may also face risks in some regions, although economists noted that higher irrigation coverage could cushion the overall damage.
According to the ICICI Bank report, paddy production is largely concentrated in northwestern India, eastern India and the Northeast, while wheat production remains heavily dependent on northwestern and central regions.
As of May 29, reservoir levels stood at 31% of total capacity, above the long-period average of 26%, offering some relief.
The government also holds comfortable foodgrain stocks. Wheat reserves currently stand at 513 lakh metric tonnes against the buffer norm of 275 lakh metric tonnes, while rice stocks are at 397 lakh metric tonnes against the required 135 lakh metric tonnes.
TOPICSIMDinflationRBIThis article was first uploaded on June three, twenty twenty-six, at eighteen minutes past seven in the evening. © IE Online Media Services (P) Ltd