Below-Normal Monsoon May Hit India's Growth and Inflation, RBI Warns
The Reserve Bank of India's (RBI) 'State of the Economy' article has cautioned that a below-normal south-west monsoon could weigh on domestic growth and inflation outlook.
The India Meteorological Department (IMD) updated its forecast on May 29, 2026, predicting below-normal rainfall this year. The monsoon arrived over Kerala on June 4, three days later than the usual onset date of June 1. Cumulative rainfall from June 1 to 21 has been significantly lower than normal across the country, according to the article authored by RBI researchers and published in the RBI monthly bulletin.
Reservoir levels have slipped below last year's levels but remain above the decadal average. However, robust public procurement of wheat last year and ample stocks of rice and wheat with the Food Corporation of India (FCI) provide a strategic cushion against any supply disruption or price spike triggered by a likely El Niño weather phenomenon, the article noted.
The views expressed in the article are those of the authors and do not represent the official views of the Reserve Bank of India.
In its June 5 meeting, the RBI's Monetary Policy Committee revised its growth projection downward from 6.9% to 6.6% and hiked the inflation forecast from 4.6% to 5.1%, citing risks from elevated oil prices, uncertainty in global trade, adverse weather, and geopolitical tensions.
The article also noted that any breakdown of the interim US-Iran peace agreement could reignite risks such as inflationary expectations, disrupted energy infrastructure, delayed investment, food security concerns, adverse financial stability, and structurally lower growth.
Despite these uncertainties, high-frequency indicators for the first two months of 2026-27 suggest sustained economic momentum. Domestic demand remained strong in May, supported by a pickup in urban demand. E-way bills continued double-digit growth, and electricity demand rose due to heatwaves. Domestic air passenger traffic rebounded year-on-year in May after three consecutive months of contraction.
The article stated that India's economy grew at 7.8% in Q4 2025-26, driven by private consumption and fixed investment. It added that India has strong fundamentals, including consistently high growth, anchored inflation expectations, sustained fiscal consolidation, a manageable current account balance, and foreign exchange buffers.
