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According to Kinjal Shah, Senior Vice President & Co-Group Head of Corporate Ratings, ICRA, “Demand conditions have become more complex for Q1 2026-27. Given lower-than-normal monsoons and demand outlook being on the downside across rural-related sectors like FMCG, two-wheeler, tractor, and agrochemicals.”India Inc. is expected to grow its revenue by mid to high single digit in the current quarter compared to 13.2% YoY in Q4 2025-26.
By end-May 2026, almost two thirds of major reservoirs in India are less than 50 per cent full, in FY21, irrigated to sown area in India grew to 55 per cent from 49.3 per cent in FY16.
Weak monsoon impacts rural-income sensitive industries the most. Tractors, two-wheelers and rural NBFCs are some of the sectors that depend directly on the monsoon season. Agriculture is responsible for about 18-20% of the Indian GDP and 60% of its land is dependent on monsoons. FMCG sector is also impacted by weak monsoon, as it has to deal with soft volume in rural areas as well as increased costs of inputs like edible oils, sugar and wheat.
There is a genuine silver lining though. Two-wheeler sales, a recognised rural demand proxy, actually grew during every past El Niño episode, including a 3% rise in the severe 2015-16 event and 13.3% growth in the strong 2023-24 episode. For households needing vehicle or working capital finance during a tighter income year, formal credit access matters even more. LoansJagat data shows its NBFC marketplace has already facilitated over ₹2,000 crore in loans disbursed to borrowers across India.
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The effect of the weakened rainfall would lead to a rise in prices of commodities like pulses, vegetables, and oilseeds as supplies are squeezed. This effect would also drag down purchasing power in rural areas and lower the demand for tractors, motorcycles, two-wheelers, mass market and general goods. He added that for MSMEs, “this pincer effect, higher input costs, softer demand and tighter credit, is what makes a weak monsoon year genuinely difficult.”
Economist Rajani Sinha said policymakers should watch tractor sales, two-wheeler demand, and rural FMCG growth closely as the earliest signs of rural distress. ICRA’s Kinjal Shah noted that investment-led segments like capital goods and infrastructure could partly offset the consumption slowdown through a rising order book from the private sector.
El Niño risks pose new uncertainties for the already challenging FY27 for India Inc, with ICRA citing risks of 100-150 basis points of margin erosion. In addition, history has demonstrated that demand in the rural hinterlands, and especially the demand for motorcycles, has tended to be resilient in past. El Niño episodes offer some reassurance for what is to come in the next few months.
What is the impact of El Niño on the Indian Monsoon, prices, and economic growth in 2026?
Monsoon rainfall of 2026 will be 90 per cent of LPA due to “early onset and intensification of El Nino in June-September 2026,” according to IMD. India experienced 41 per cent shortfall during monsoon showers of June 4 and June 18.
Which food products are going to be expensive due to the effects of El Nino on the Kharif crop of 2026?
Pulses, oilseeds, vegetables, and coarse grains are the food items which will be affected the most due to low rainfall. Rising food price inflation during years of bad monsoon also impacts the costs of production for small food processing firms and reduces the income of farmers. The rate of inflation may go up to 8%-12%, claim analysts.
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