India's agriculture sector faces downside risks in 2026-27 from a likely El Niño-driven weak monsoon, but expanding irrigation coverage, improved crop management practices and technological advancements could help mitigate the impact, the Reserve Bank of India (RBI) has said in its Annual Report 2025-26.
The central bank noted that agricultural performance during the current financial year will remain heavily dependent on the progress and spatial distribution of the monsoon. The possible emergence of El Niño conditions could adversely affect agricultural production, although the development of a positive Indian Ocean Dipole (IOD) during the latter half of the monsoon season may partly offset the negative effects of deficient rainfall.
"Indian agriculture continues to remain dependent on the monsoon. However, the expansion of irrigation infrastructure, improvements in crop management practices and the increasing adoption of advanced technologies have strengthened the sector's resilience to weather-related shocks," the RBI said.
According to the report, these structural improvements could help limit the adverse impact of a weak monsoon on agricultural output.
The RBI also flagged concerns over the availability and prices of critical agricultural inputs, particularly fertilizers, amid ongoing geopolitical tensions. However, it expressed confidence that government efforts to ensure adequate supplies of fertilizers and other farm inputs would help address these challenges.
A deficient monsoon could affect kharif sowing, crop yields and rural demand, with potential implications for overall economic growth and food inflation, the report said.
Inflation Risks Remain
Despite weather-related uncertainties, the RBI expects inflation to remain broadly aligned with its target during 2026-27, supported by adequate foodgrain stocks, sufficient reservoir levels and stable agricultural prospects.
"Inflation in 2026-27 is likely to remain aligned with the target on the back of adequate foodgrain stocks, sufficient reservoir levels and stable agricultural prospects despite possible El Niño conditions and above-normal summer temperatures," the report stated.
However, the central bank cautioned that upside risks to inflation persist. These include a potential surge in global fuel and commodity prices amid geopolitical tensions, spillovers to input and wage costs, and exchange rate volatility.
Taking these factors into account, the RBI has projected consumer price index (CPI)-based inflation at 4.6 percent for 2026-27.
IMD Forecasts
The RBI's concerns come against the backdrop of a weaker monsoon forecast issued by the India Meteorological Department (IMD).
According to the IMD, southwest monsoon rainfall during the season is expected to be 90 percent of the Long Period Average (LPA), with a model error margin of ±4 percent.
The weather department has forecast below-normal rainfall over central India, the south peninsula and northwest India, while northeast India is expected to receive normal rainfall. Rainfall is also likely to remain below normal in the Monsoon Core Zone (MCZ), which encompasses most of the country's rainfed agricultural areas.
For June, rainfall across the country is expected to remain below 92 percent of the LPA, with most regions likely to receive below-normal precipitation. The IMD has also warned of above-normal temperatures and an increased number of heatwave days in several states, including Uttar Pradesh, Haryana, Punjab, Bihar, Odisha, Chhattisgarh, Gujarat and Andhra Pradesh.
The weather agency said that the current neutral El Niño-Southern Oscillation (ENSO) conditions over the equatorial Pacific Ocean are showing signs of transitioning toward El Niño. Climate model projections indicate that El Niño conditions could develop during the southwest monsoon season, raising concerns about rainfall distribution and agricultural performance across the country.