RBI Monthly Bulletin: Monsoon shortfall could weigh on growth, inflation outlook

The reservoir position has slipped below last year. However, it remains above the decadal average, it said. “Given the good harvest last year, the public procurement of wheat has been robust. The public stock of rice and wheat with the Food Corporation of India (FCI) is well above the buffer norms which may serve as a strategic cushion against any supply disruption or spike in prices triggered by a likely El Niño weather phenomenon,” the article said.

“Views expressed in this article are those of the authors and do not represent the views of the Reserve Bank of India,” the central bank said.

The RBI’s Monetary Policy Committee had re-assessed both its growth and inflation projections, with risks emanating from elevated oil prices, uncertainty in global trade, adverse weather conditions and geopolitical tensions clouding the economic outlook. In its meeting held on June 5, it lowered the growth projection from 6.9% to 6.6% and hiked the inflation forecast from 4.6% to 5.1%.

Any breakdown of the interim US-Iran peace agreement may reignite material risks in terms of inflationary expectations, disrupted critical energy infrastructure, delayed investment spending, food security concerns, adverse financial stability outlook and structurally lower growth, the article said.

However, it said high frequency indicators during the first two months suggest sustained economic momentum in 2026-27 even as “domestic demand remained strong in May, supported by pick-up in urban demand”.

The uncertainties could have an impact on the outlook through international trade, cost pressures, capital flows and commodity prices, it said. According to the article, the global economic landscape remains fragile despite some respite through the interim US-Iran peace agreement. “The Indian economy entered this turbulence with much better fundamentals relative to many other countries to sustain the shock,” it stated.

It said India maintained a consistently high growth, anchored inflation expectations, sustained fiscal consolidation, manageable current account balance and foreign exchange buffers over the previous few years, which adds to its strength vis-à-vis similar other events in the past.

Amid the challenging global environment, the Indian economy grew at 7.8% in Q4 2025-26, supported by private consumption and fixed investment.

According to the report, high-frequency indicators point towards resilience of economic activity in May. E-way bills continued to achieve double-digit growth.

Goods and services tax revenue growth moderated sequentially in May after recording strong growth in April. While petrol, diesel and aviation turbine fuel consumption recorded a positive growth in May, that of total petroleum products dipped due to a sharp fall in the consumption of LPG, petroleum coke and naphtha. Electricity demand clocked a double-digit growth (y-o-y) in May driven by heatwaves, it said.

The article noted that domestic air passenger traffic rebounded year-on-year in May after three consecutive months of contraction. Meanwhile, new product launches and healthy order books accelerated growth in passenger vehicle sales, alongside rising electric vehicle penetration across all segments. Conversely, rural demand showed signs of moderation, reflected in slower retail automobile sales.