Monsoon Deficits and Rising Regional Tensions Forecast to Sustain Elevated Inflation in FY27

India Faces Fresh Inflation Risks as Monsoon Forecast and West Asia Tensions Loom

India's inflation trajectory may face fresh upside risks in the upcoming fiscal year (FY27) due to a below-normal monsoon forecast and persistent tensions in West Asia. The India Meteorological Department (IMD) on April 13 projected monsoon rainfall at 92 percent of the long-period average (LPA), its weakest preliminary long-range forecast in nearly 26 years.

A weaker monsoon could disrupt sowing, hurt crop yields, and lift prices of key food items, particularly pulses and oilseeds. The IMD's forecast of a sub-par monsoon, at 92 percent of LPA, owing to El Nino conditions, is the lowest first long-range forecast in at least 26 years. This poses material upside risks to inflation, according to economists.

Aditi Nayar, Chief Economist at ICRA Ltd, noted that the weak monsoon outlook, along with the ongoing crisis in West Asia, creates downside risks to India's GDP growth in FY27 while creating upside risks to inflation. According to Nayar, average CPI inflation in FY27 could exceed 4.5 percent, despite comfortable reservoir levels.

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Economists said the eventual impact would depend not only on total rainfall, but also on its timing and distribution. Madan Sabnavis, Chief Economist at Bank of Baroda, stated that the arrival of the monsoon would influence cropping patterns, while delays could defer sowing. Rainfall progress during the season is crucial for flowering, and uneven spread across states could hurt regions with low irrigation coverage. The timing of monsoon withdrawal is also important, as it can affect harvesting.

India's retail inflation rose to 3.4 percent in March 2026, from 3.2 percent in February, as food prices accelerated, according to official data released on April 13. However, inflation remained below the Reserve Bank of India's 4 percent target. Transport inflation stayed flat at 0 percent, indicating limited immediate impact from higher crude prices as pump prices remained unchanged. But LPG inflation climbed to 5.27 percent from 1.62 percent in February.

Rajani Sinha, Chief Economist at CareEdge, expects CPI inflation to average 4.6 percent in FY27, in line with the RBI's projection, as higher oil prices and El Nino risks add to inflationary pressures. She also noted that even with the early resolution of the West Asia crisis, global crude oil prices are still likely to average USD 85-90 per barrel in FY27.

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