S&P Global Ratings says a weak 2026 southwest monsoon could put pressure on rural India through lower farm incomes, higher food inflation and softer rural demand. Its July 5 assessment identifies agriculture as the most exposed sector and traces possible effects into farm-linked businesses, hydropower and credit.
This is a conditional risk scenario, not evidence of a uniform drought or proof that those losses have already occurred. Outcomes depend on where and when rain falls, regional variation and access to irrigation.
IMD’s June 30 outlook said average rainfall across India in July was most likely to be below normal, defined as less than 94% of the long-period average. It forecast below-normal rain over most parts of the country, with normal to above-normal rainfall possible in parts of northwest and northeast India, east-central India and the eastern peninsular region.
The same outlook said weak El Niño conditions were present over the equatorial Pacific and were likely to strengthen during the southwest monsoon season. IMD said below-normal rainfall can challenge agriculture, water resources, hydropower generation and drinking-water availability, while stressing preparedness rather than declaring a fixed outcome.
S&P’s July 8 summary said more than half of India’s net-sown area depends on rain. It put agriculture at about 18% of the economy by value added and up to 40% of employment. In S&P’s scenario, weaker yields and farm incomes could soften rural demand, while food inflation would be a key route into the wider economy.
The exposure does not stop with crops. S&P identified agrochemicals, tractors and two-wheelers as vulnerable to weaker rural demand. Its July 5 assessment also said hydroelectric generation could decline by 10% to 15% under a weak-monsoon scenario; that is not an observed fall or a forecast for total electricity generation.
S&P said banks could see slower credit growth and a modest deterioration in agriculture-linked asset quality—the performance of those loans—but only a limited effect on earnings. Microfinance institutions are more exposed because they have greater rural exposure and, in S&P’s assessment, borrowers with weaker credit profiles.
The ratings agency also identified safeguards. Resilient financial conditions, prudent underwriting, regulatory flexibility and growth outside agriculture could limit the wider credit effect.
IMD’s current rainfall dashboard tracks daily, monthly and season-to-date rainfall. Later observations—and IMD’s expected outlook for August and the second half of the monsoon—will show whether the risks identified by S&P are easing, persisting or changing by region.
This article explains an economic risk scenario and does not provide investment, lending or personal financial advice.
