Hello, this is Priyanka Salve writing from Singapore.
Welcome to the latest edition of Inside India. A one-stop-shop for the stories and developments of the world’s fastest growing large economy.
India is one of the largest producers of agricultural products and ranks among the world’s top exporters of rice and sugar. Its farms feed around 1.5 billion people, reduce supply-side inflation, support 46.1% of India’s workforce and boost consumer spending.
However, this important sector is currently facing heat from the so-called Super El Niño. This week, we dig deeper to understand what this global weather phenomenon means for India.
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This year could not get any better for the world’s fastest growing economy.
The Super El Niño phenomenon has emerged as the latest headwind for growth in India, which is already facing a global energy shock, trade uncertainty with the US and a record exit of foreign investors from the stock market.
Rainfall in India was the lowest in more than a decade from June to September, a critical season for mostly rain-fed farms and reservoirs, local media reported. Temperatures were the fourth lowest since 2001 and the 13th driest since 1901, according to the India Meteorological Department.
Nomura’s Monday report said the country’s reservoirs were 28% short of full capacity at the end of September, posing a risk to winter crops. Several parts of major agricultural states such as Maharashtra, Andhra Pradesh, Punjab and Haryana are facing extreme “drought conditions”, Nomura said.
India’s sugar industry is vital to agriculture, industry and rural livelihoods, supporting nearly 5 billion farmers and 500,000 factory workers. India is the second largest producer of sugarcane (Saccharum officinarum) in the world. Recently, the sector has been affected by the El Niño phenomenon, which has brought a weak monsoon and dry weather, reducing yields and sucrose recovery.
Null Photo | Null Photo | Getty Images
India and other countries are facing “critical fertilizer shortages” as major producers in the Middle East and Russia are affected by geopolitical conflicts, Foreign Minister Subrahmanyam Jaishankar said at an event hosted by the non-profit Asia Society in New York last week.
Jaishankar warned that, coupled with the Super El Niño phenomenon, “there will be a major food crisis” in the coming months. Energy shocks and the flow of funds to safe ports are “very stressful” for economies in the Global South, he said. Global South is a term used to characterize underdeveloped or emerging economies.
Jaishankar’s comments prompted Prime Minister Narendra Modi’s political opponents to accuse the government of not acting in time to avert the crisis.
Effects of Super El Niño
Despite India’s economic growth being solid so far, inflation has risen for 10 consecutive months, surpassing the central bank’s medium-term target of 4% in August.
While agriculture accounts for about 17% of the Indian economy, agriculture provides a livelihood for about 46.1% of India’s workforce. Its agricultural products are critical to curbing domestic supply-side inflation, and the country ranks among the world’s top exporters of rice and sugar. The rural economy is primarily dependent on agriculture, which is also an important pillar of consumer spending.
India’s “monsoon deficit appears to be larger than initially expected”, the World Bank said in a report on Tuesday. “This is expected to reduce agricultural output and rural demand, while increasing food inflation and adding to existing pressures from higher energy prices,” the report said.
Rural areas account for nearly 40% of sales of fast-moving consumer goods, according to data from consultancy Nielsen Consumer. Rural demand is key for India’s major multinational companies. Hindustan Unilever, Colgate-Palmolive India, nestleindand car manufacturers maruti suzuki and hyundai carmarket-wise data based on annual reports and financial statements.
India’s rural economy is likely to slow “significantly” in 2026 and 2027 “as drought conditions, below-average monsoon rainfall and depleting reservoir levels reduce crop yields and farm incomes,” said Hanna Ruchnikava Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence.
Ručnikava-Shorsch told CNBC that while broad indicators have remained resilient so far, “early signs of stress are already showing,” adding that tractor sales are slowing and “demand for local employment support programs is starting to increase.”
Morgan Stanley expects gross value added in India’s agriculture sector to grow 1.6% in the fiscal year ending March 2027, much slower than the 3.5% growth over the past three years. S&P Global Market Intelligence Analysis predicts growth will slow to 1.9%.
Experts agree that India is one of Asia’s major economies most at risk from the effects of Super El Niño, but while many expect the country to use policy cushions to cope with the impact, others predict it could cause unrest.
Global risk advisory firm Verisk Maplecroft said in a September 16 report: “Food security risks are increasing across South and Southeast Asia, raising the potential for instability and political instability in some of Asia’s most at-risk economies.”
Verisk Maplecroft noted that India, Indonesia, Pakistan, Bangladesh and the Philippines are among the countries most at risk of food security from Super El Niño, and also the most at risk of social unrest due to rising prices.
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