In India, El Nino threatens to bring higher food prices, rate hikes, and a tough election for Modi

Nevin Al Sukari - Sana'a - Girls sprinkle fertiliser in a corn farm in Nashik, India on July 28, 2025. — Reuters pic

MUMBAI, April 18 — India’s weather office has forecast a below-average monsoon in 2026, with an El Nino expected to develop and weigh on ‌rainfall in the latter half of the June to September season.

In the past, India has seen below-average rainfall in most El Nino years, at times triggering severe droughts that ravaged crops and prompted export curbs on certain grains.

What is El Nino? ‌How does it affect India’s monsoon?

El Nino, a warming of the central and eastern Pacific, alters atmospheric circulation and weakens monsoon winds over the Indian subcontinent. While El Nino is strongly linked to weaker monsoons, India has still seen average or above-average rains in at least five of 17 such events over the past seven decades. However, in the last six El Nino years, India has received below-average rains.

In 2009, even a weak El Nino led to a sharp drop in India’s rainfall to 78.2 per cent of a long-period average, the lowest in 37 years. Weather models suggest the 2026 El Nino could be strong.

A woman holds a five-hundred-rupee currency note in the old quarters of Delhi, India on September 25, 2025. — Reuters pic

Why is the monsoon important?

The monsoon delivers nearly 70 per cent of India’s rainfall and is vital for the agricultural sector, which accounts for about ‌18 per cent of the nearly US$4 trillion (RM12 trillion) economy and employs nearly half of India’s 1.5 billion people. Below-normal rainfall could mean ⁠smaller harvests of crops such as rice, cotton and soybeans, ⁠while also weighing on winter crops like wheat and rapeseed due to ⁠lower soil moisture.

It may prompt New ⁠Delhi to restrict exports ⁠of some farm goods, as it did during the 2023 El Nino year. It could also force India to increase imports of edible oils, particularly palm oil and soyoil. A weaker monsoon could also hit power generation by reducing hydropower ⁠output, which accounts for about 6 per cent of the mix.

How does the monsoon affect inflation and central bank policy?

Food accounts for nearly a third of India’s consumer price index, which the central bank closely monitors when setting monetary policy. Rainfall has been above average in India over the past two years, helping to ease food prices and broader inflation. This has given the central bank room to cut lending rates. However, below-normal rainfall, combined with ⁠rising commodity costs due to the Iran conflict, could lift overall inflation and potentially force the central bank to raise interest rates. A slowdown in economic momentum and higher inflation could further hit ⁠foreign investment and add more pressure on the rupee, among the worst-performing Asian currencies so far in 2026.

India’s Prime Minister Narendra Modi speaks prior to a meeting with Brunei Sultan Hassanal Bolkiah at Istana Nurul Iman in Bandar Seri Begawan on September 4, 2024. — AFP pic

Why is the ⁠monsoon important for ⁠Prime Minister Narendra Modi’s government?

Modi remains popular despite being in power for more than a decade, but rising inflation could make it difficult for his Bharatiya Janata Party (BJP) in crucial state elections early next year, including in the most populous northern state ‌of Uttar Pradesh.

Ahead of key state elections, the government may find it difficult to pass on higher energy costs driven by the Iran war to consumers, potentially straining its finances. — Reuters