Low monsoons may not be much of a worry for the Indian economy. Here’s why

The Centre remains concerned about economic prospects and inflationary pressures this fiscal from the West Asia war but is of the view that the economy is fairly resilient and believes that the expectation of a below average monsoon may not upset the estimates too much. A revisit of the Budget math and estimates would only be done later in the year as it is only one month into the new fiscal year.

 “The Reserve Bank of India in the monetary policy review has already factored in the impact of the war on growth and inflation and has outlined different scenarios based on global crude oil prices. At this point of time, the expectation is that if the war comes to an end in the next few weeks, these estimates would still hold,” said a person familiar with the development. However, if the war continues for longer with no durable ceasefire, the estimates for growth and inflation would have to be reviewed by the end of the first quarter.

“The government will wait to see the RBI’s stance and estimates when the monetary policy committee meets in June,” said the person.

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In the monetary policy meeting in April 2026, the MPC had pegged GDP growth at 6.9% for the fiscal with retail inflation at 4.6%. However, if crude oil averages $95 per barrel this fiscal, growth could be lower at 6.7% and inflation higher at 5%.

Government sources also indicated that that farm sector productivity and prices may not be much impacted from a poor monsoon due to El Nino effects developing later in the summer. “The reservoir levels are healthy and the El Nino impact is expected to come into play only in late July-August by when most of the sowing is done,” said the source. Agriculture has also become more resilient with better farming and irrigation techniques, they noted.

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The Monthly Economic Review of the Finance Ministry for April had also highlighted that India remains fairly resilient to external shocks but had highlighted the West Asia conflict and potentially weak monsoons as downside risks to growth.

While there is no official word on the US-Israel and Iran war, US President Donald Trump on Tuesday said that military efforts to open the Strait of Hormuz has been paused. There are also reports that the US and Iran are coming to an agreement.

Sources however, noted that the impact on the fisc in terms of higher crude oil prices will have to be evaluated due to giveaways in terms of higher fertilizer subsidies as well as the excise duty cut on petrol and diesel. It is expected that revenue collections may also be impacted to some extent this fiscal.

For FY27, the Centre has Budgeted fiscal deficit at 4.3% of the GDP and this could have to be revisited later in the year.

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