It is important to note that the area sown during the kharif season doesn’t change much year-on-year. Based on data for the past 26 years (2000-2025), the average fall in kharif area sown during rainfall-deficit years (about -10 per cent or worse) was only 0.9 per cent. There were eight such years in the period: FY01, FY03, FY05, FY10, FY15, FY16, FY19 and FY24. During moderate or strong El Nino years (only four episodes in FY03, FY10, FY16 and FY24), kharif area sown was down by an average of 1.9 per cent. The average growth in kharif area sown was under 1 per cent during normal (non-El Nino or non-rainfall-deficit) years. The fall of 1.2 per cent in 2026, therefore, is not out of line.
Notwithstanding a small fall in area sown, kharif yield declined by an average of 6.5 per cent during rainfall-deficit years and as much as 8.4 per cent per annum during El Nino years. In contrast, the yield under kharif season grew by 4-6 per cent per annum during normal years. Because of lower yield (due to low water supply and/or higher temperature), the agricultural output under kharif season fell by about 7 per cent annually during rainfall deficit years and as much as 10 per cent per annum during El Nino episodes. This compares with an average growth of 5-7 per cent during normal years.
Not surprisingly, then, real agricultural gross value added (GVA) witnessed an average decline of 0.3 per cent per annum during rainfall-deficit years, with the fall rising to about 1 per cent during El Nino years. During normal years, real agricultural GVA growth averaged 4-5 per cent. Most interestingly, the adverse impact on the real agricultural GVA during El Nino or rainfall-deficit years was entirely concentrated in the second half of the year (2H). For instance, while average growth in the first half of rainfall-deficit years was 2 per cent (and 1 per cent during El Nino years), real agricultural GVA declined by about 2 per cent per annum during the affected period. In the first quarter of 2026-27 (1QFY27), real agricultural GVA grew 3.6 per cent Y-o-Y; however, as yields get adversely affected, we expect it to soften towards 2 per cent Y-o-Y in Q2, before easing to 0.4 per cent in 2HFY27 (not a decline). This will mean a growth of 1.4 per cent in FY27 vs 3 per cent in FY26.
Not only real agricultural GVA but rural income (or wage growth) also gets adversely affected. Based on monthly data available from the Labour Bureau, real rural wage growth was 0.5 per cent per annum during the rainfall-deficit years (and 0.9 per cent annually during El Nino years), only about a quarter of the 1.8 per cent per annum growth during normal years.
Unsurprisingly, the adverse impact was more pronounced in agricultural wages (only about a fifth of the normal-period average) than non-agricultural wages (about half of the normal-period average). In the first five months of FY27 (April-August), real rural wage growth averaged 0.6 per cent Y-o-Y, with only 0.3 per cent growth in agricultural activities and 0.9 per cent growth in non-agricultural activities.
Further, real private final consumption expenditure has also seen slower growth in the affected years — an average growth of 5.5 per cent per annum vs 6 per cent during normal years.
Surprisingly though, the effect on food inflation is not so clear. While it has been higher during El Nino years, the adverse impact during all rainfall-deficit years is not as prominent.
Overall, a fall of 1.2 per cent Y-o-Y in area sown under kharif crops is not reliable evidence to suggest no adverse impact of El Nino. With a similar fall in area sown, we have seen a sharp fall in yield, and thus production, during bad monsoon years earlier.
What about improved irrigation levels or the declining share of agriculture in GVA and, consequently, in GDP? Irrigated area has increased across various crops; however, it remains low. About 70 per cent of the area under rice cultivation was irrigated in 2023-24, compared with 60 per cent a decade earlier and about 55 per cent in the mid-2000s. Similarly, about 35 per cent of the area under pulses was irrigated, compared with 20 per cent a decade earlier. This is one of the reasons why we don’t expect a decline in real agricultural GVA in FY27, despite a super El Nino and a large rainfall deficit.
Moreover, while the share of crops in the total agricultural GVA was falling from 65 per cent in FY12/FY13 to 54 per cent in FY24 (under the 2011-12 base), it was revised upwards to 62 per cent in FY23 under the new 2022-23 base and has remained unchanged through FY25.
To conclude, we firmly believe that the adverse impact of El Nino and a large rainfall deficit will be visible in 2HFY27. That’s why, we find it really difficult to believe that real GVA/GDP growth could stay at 6.8-6.9 per cent in 2HFY27, as is suggested by the Reserve Bank of India projections and the market consensus. Including an unfavourable base effect, weak fiscal spending growth (since we assume that the government will meet its fiscal deficit target of 4.5 per cent of GDP), and the adverse impact of higher inflation on consumption, we believe that GVA/GDP growth could weaken substantially to below 6 per cent. This will also make it difficult for the RBI to raise rates after December, making this rate-hike episode a shallow one.
The writer is India economist at CLSA India Private Ltd and the author of The Eight Per Cent Solution
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