The Ministry of Finance has warned that the possible emergence of El Niño during the 2026 monsoon season could pose significant risks to agricultural production, food inflation and rural economic activity, despite favourable foodgrain stocks and water availability at the start of the kharif season.
In its Monthly Economic Report for May 2026, the ministry said agricultural prospects offer both short-term comfort and medium-term caution. The report noted that the India Meteorological Department (IMD) expects a likely transition from ENSO-neutral conditions to El Niño during the monsoon season, with rainfall projected at around 92 per cent (IMD has revised it to 90 per cent) of the Long Period Average (LPA). The ministry added that interactions between El Niño and other climatic factors could increase the probability of deficient rainfall.
Strong Starting Position for Kharif
According to the report, India enters the monsoon season with comfortable foodgrain stocks and adequate water reserves. Combined rice and wheat stocks held by the Food Corporation of India (FCI) and state agencies stood at 817.53 lakh tonnes at the end of April 2026.
Reservoir storage levels were also significantly above normal at 123.86 per cent of the decadal average. Summer crop sowing has expanded to 83.08 lakh hectares, compared with 80.01 lakh hectares during the corresponding period last year, providing an encouraging backdrop for the upcoming kharif season.
However, the ministry cautioned that if rainfall turns deficient during June due to El Niño development, the impact on food inflation, rural consumption and aggregate economic growth could be rapid, particularly when global energy prices remain elevated.
Pulses and Oilseeds Most Vulnerable
The report observed that rice production has historically remained relatively resilient during El Niño years because major rice-producing states benefit from better irrigation coverage.
In contrast, pulses and oilseeds have been far more vulnerable to rainfall shortages. Since these crops are largely cultivated in rainfed regions, previous El Niño episodes have often resulted in lower acreage, reduced yields and declines in overall production.
The ministry also flagged concerns for the livestock and dairy sectors. Deficient rainfall could lead to fodder shortages, lower milk production and rising feed costs, creating additional pressure on farm incomes and food prices.
Labour Market Remains Stable
Alongside its assessment of agricultural risks, the ministry reported broadly stable labour market conditions. According to the April 2026 Periodic Labour Force Survey (PLFS), the labour force participation rate for persons aged 15 years and above stood at 55 per cent, while the unemployment rate was 5.2 per cent.
Quarterly PLFS estimates for January-March 2026 showed average employment at 57.4 crore persons, comprising 40.2 crore men and 17.2 crore women. Agriculture remained the largest employer, accounting for 41.1 per cent of total employment, followed by the services sector at 33.7 per cent and the industrial sector at 25.2 per cent.
Shift in Rural Employment Patterns
The report noted that agriculture's share in rural employment declined from 58.5 per cent in the third quarter of FY26 to 55.8 per cent in the fourth quarter, reflecting the seasonal reduction in labour demand during the period between rabi sowing and harvesting.
The released workforce appears to have been absorbed partly by the secondary and tertiary sectors, which recorded a modest increase in their employment share. In urban areas, the services sector remained dominant, accounting for 62.1 per cent of employment during the quarter.
The ministry also highlighted differences in employment patterns across regions. While rural areas witnessed a decline in self-employment and casual labour alongside an increase in regular wage employment, urban areas saw the opposite trend, with a rise in self-employment and a decline in regular salaried jobs. Regular wage employment, however, remained the dominant form of employment in urban India, accounting for 48.9 per cent of jobs.
The report noted that women continue to have relatively higher participation in agriculture and self-employment activities, while male workers remain more concentrated in the industrial and services sectors.
While labour market indicators point to stability, the ministry underscored that the course of the 2026 monsoon will remain a critical determinant of agricultural output, inflation trends, rural demand and overall economic growth in the months ahead.