Weak Monsoon and El Nino – Impact on India’s Economy

Weak Monsoon Latest News

• The India Meteorological Department has forecast below-normal rainfall in July after a 40% deficit in June, raising concerns about the impact of a weak monsoon and a potential “super” El Nino on India’s economy.

Understanding the Monsoon and El Nino Connection

• The southwest monsoon (June-September) is the lifeline of India’s economy, delivering about 75% of the country’s annual rainfall. 
• It supports agriculture, replenishes reservoirs, recharges groundwater, and sustains hydropower generation.
• El Nino is a climate phenomenon marked by the warming of surface waters in the equatorial Pacific Ocean, off the north-western coast of South America. 
• It has a tendency to suppress rainfall over the Indian region, though the impact usually comes with a lag of over a month.
• A “super” El Nino refers to a particularly strong phase of this phenomenon, which can cause more severe rainfall deficits and prolonged droughts.
• Historically, several of India’s worst droughts have coincided with El Nino years, including 1972, 1982, 2009, and 2015.

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How a Poor Monsoon Damages the Economy

• Impact on Agricultural Output
  • Agriculture accounts for about one-fifth of India’s Gross Value Added (GVA) but employs 46% of the workforce.
  • Nearly 55% of the population depends on agriculture directly or indirectly.
  • India came into the current kharif season from a strong position, foodgrain output in 2024-25 rose to 357.73 million metric tonnes, up 25.43 MMT from the previous year.
  • A weak monsoon puts this momentum at risk, particularly for kharif crops like paddy, maize, pulses, and cotton.
• Impact on Rural Incomes and Demand
  • A weak monsoon hits rural income, denting aggregate demand across the economy.
  • Farm incomes could fall by up to 10% during a weak monsoon year.
  • The rural non-farm sector, mainly non-traded services like construction, contracts when agriculture is affected.
  • Industries dependent on rural demand, including two-wheelers, tractors, and real estate in smaller towns, are among the first to feel the squeeze.
• Food Inflation Pressures
  • A weak monsoon threatens to push up food prices, fuelling inflation.
  • The RBI has warned in its June bulletin that an adverse southwest monsoon may weigh on the domestic growth-inflation outlook.
  • Data up to June 18 already showed food inflation continuing to rise, with prices of edible oils, potatoes, onions, and tomatoes edging up.

Broader Economic Impact

• GDP Growth Concerns
  • According to analyses by financial firms, a combined El Nino-plus-drought scenario could shave 20-65 basis points off India’s GDP growth.
• Cropping Pattern Shifts
  • Paddy acreage is expected to expand in Punjab, Haryana, and Bihar.
  • Maize acreage may decline as farmers shift to more remunerative crops.
  • Pulses may be preferred due to lower cultivation costs and water requirements.
  • Some farmers may choose not to plant vegetables at all.
  • Decisions are influenced by irrigation availability, MSP, procurement support, and market conditions.
• Fertiliser and Supply Constraints
  • Pest attacks in weakened crops.
  • Fertiliser supply constraints caused by the Iran conflict.
  • The Union Cabinet approved a Rs. 41,533 crore Nutrient-Based Subsidy for phosphatic and potassic fertilisers for the kharif season, covering 28 grades.
• External Sector Impact
  • If domestic output falls short:
  • The government may release buffer stocks and increase imports.
  • This could widen the Current Account Deficit and put pressure on the rupee.
  • India’s agricultural exports, which have grown at a CAGR of 8.2% between FY20 and FY25 and contribute 12% to core exports, face a threat.

Lessons from Past El Nino Years

• The 2009 and 2015 monsoon failures illustrate how differently poor monsoons can affect the economy:
• 2009 and Its Aftermath
  • Two subsequent years of rainfall stress.
  • All-India average irrigation cover less than 45%.
  • Crop GVA contracted 2.5% and 3.2% in FY09 and FY10, respectively.
  • Inflation reached double digits.
• 2015 Experience
  • Both 2014 and 2015 saw monsoon disruptions as El Nino moved from weak to strong.
  • Crop GVA contracted, but the impact on inflation was muted.
• Reasons for controlled inflation included: 
  • Proactive food management
  • Restrained MSP hikes
  • Global commodity price slump
• Since 2000, of the 11 instances of below-normal or deficient monsoon at the all-India level, six were classified as El Nino years by the IMD, with five seeing deficient rainfall.

India’s Preparedness

• The government has identified vulnerabilities:
  • 315 districts are vulnerable to a poor monsoon.
  • 111 districts across 12 States are of primary concern due to poor irrigation facilities.
• Reservoir Storage Status
  • As of July 2:
  • Storage levels across the 166 reservoirs monitored by the Central Water Commission stood at 47.725 BCM.
  • This is lower than 78.077 BCM during the corresponding period last year.
  • It is also below the normal storage of 48.402 BCM for this time of year.
  • While the system can meet current requirements, a prolonged poor monsoon could strain it significantly.
• Structural Preparedness
  • Experts have raised concerns about India’s disaster preparedness:
  • Irrigation is crucial for adapting to climate change-induced water stress.
  • India needs to move from crop insurance to ex-ante risk reduction.
  • Investment in drought-resistant, high-yielding crops remains inadequate.
  • Public investment in risk reduction is currently lacking.
  • A second successive bad weather year would be significantly more damaging.

Way Forward

• Short-Term Measures
  • Strengthen buffer stocks to manage food supply.
  • Monitor food inflation and take proactive measures.
  • Support farmers in vulnerable districts with contingency plans.
  • Manage fertiliser supply through diversified imports.
• Medium-Term Reforms
  • Expand irrigation coverage, especially in rain-fed regions.
  • Promote water-efficient crops and precision agriculture.
  • Strengthen crop insurance with quicker settlements.
  • Enhance weather forecasting and early warning systems.
• Long-Term Strategy
  • Drought-proof the economy through structural reforms.
  • Move from crop insurance to ex-ante risk reduction.
  • Invest in drought-resistant, high-yielding crop varieties and ensure farmer access.
  • Modernise water storage and management infrastructure.
  • Diversify rural economy to reduce dependence on agriculture alone.
  • Strengthen public investment in agricultural R&D and disaster preparedness.

Source: TH