Strong growth, deficient monsoon: India's economic balancing act

Abhijit Mukhopadhyay

New Delhi, Oct 14 (UNI) When it comes to national income, India enters the second half of 2026-27 from a position of considerable macroeconomic strength. Real GDP growth of 7.8 per cent in the April-June quarter places India among the fastest-growing major economies, even as external demand remains uneven and geopolitical and trade-related uncertainty persists.

The task now is to preserve this momentum by broadening its sectoral base, cushioning weather-related pressures on agriculture, and sustaining investment-led expansion.

The first-quarter numbers show that India's growth is supported by meaningful activity in services, manufacturing, construction and investment. Real gross value-added rose 8.2 per cent, while the tertiary sector expanded by 10 per cent. Financial, real estate, IT and professional services registered particularly robust growth of 12.1 per cent, underlining the continued competitiveness of India's services economy.

The expenditure side is equally encouraging. Gross fixed capital formation rose 11.9 per cent in real terms, almost double its 5.8 per cent growth a year earlier. Public infrastructure spending, private capital formation, and construction activity reinforce one another. Household consumption grew 7.1 per cent, providing a base for important domestic demand.

The growth pattern also signals the policy emphasis on infrastructure, logistics, manufacturing capabilities and digital services. Construction, transport connectivity, energy capacity, and industrial corridors drive short-term demand. India's growth story retains the structural dimension: a large domestic market, a deepening investment cycle and continuing services.

Yet the composition of growth also points to the next policy priority. The primary sector grew 2.9 per cent in the first quarter, while agriculture and allied activities expanded 3.6 per cent. These are positive rates, but they are considerably below the pace of the services and secondary sectors. With a deficient monsoon adding uncertainty to farm output and rural incomes, maintaining a balanced recovery will require timely, calibrated support for agriculture and rural demand.
The August performance of the eight core industries provides a useful reading of the real economy. Core-sector output rose 4.8 per cent year-on-year, only modestly slower than the 5 per cent growth recorded in July. Infrastructure-linked activity remains expansionary, but momentum varies significantly across sectors.

Cement output grew 12.5 per cent, and electricity generation rose 11.6 per cent in August. Strong cement demand suggests that construction, housing and public infrastructure projects remain active. Higher electricity generation reflects a combination of industrial usage, commercial activity and household demand. Iron ore output also grew 5.5 per cent, supporting the broader industrial ecosystem.

However, steel growth was more moderate at 3.4 per cent, and refinery products rose 2.6 per cent. Coal contracted 3.8per cent, crude oil output declined 3.6per cent, natural gas fell 4.9 per cent, and fertiliser production dropped 12.4 per cent. The diversity is not a loss of momentum; rather, it highlights sector-specific constraints.

For April-August, the core index expanded 4.3 per cent, notably higher than the 2.4 per cent growth recorded during the corresponding period a year earlier. This provides a solid base for industrial production, although the contraction in coal, natural gas, crude oil, refinery products, and fertilisers merits close monitoring because these sectors directly affect energy security, farm input availability, and industrial costs.

The policy response should be practical and forward-looking: accelerate project execution where infrastructure activity is strong, address logistics and input bottlenecks for steel and refinery products, and improve the operational reliability of domestic coal, oil and gas production.

India's energy transition must proceed alongside efforts to strengthen conventional energy availability, particularly as electricity demand continues to rise.

The 2026 southwest monsoon ended at 87 per cent of the long-period average. This places the season in the deficient category and makes rainfall distribution important for the farm outlook.

A deficient monsoon can influence the economy through several channels. First, it can affect kharif yields in rain-fed areas, particularly where long dry spells coincide with sensitive crop stages. Second, lower soil moisture and uneven reservoir replenishment can affect rabi sowing decisions. Third, it can shift crop choices, with farmers moving toward less water-intensive crops where local water availability is constrained. Finally, lower or delayed farm incomes may soften rural consumer spending, especially on discretionary goods.

However, the situation requires policy differentiation rather than alarm. Aggregate kharif sowing as of late September was only 1.2 per cent lower than a year earlier, at about 110.7 million hectares. The impact has been uneven across crops: paddy acreage fell, while pulse acreage rose.

This suggests that farm-sector outcomes will depend substantially on region-specific yields, reservoir levels, irrigation access, the northeast monsoon's contribution in relevant areas, and the performance of the upcoming rabi season.
The immediate focus should be on protecting farm incomes and maintaining agricultural supply. Governments can intensify district-level crop advisories, ensure adequate seed and fertiliser availability for rabi planting, expand support for micro-irrigation and promote water-efficient crop choices where conditions warrant.

Timely and targeted deployment of crop-insurance mechanisms can also reduce income volatility for farmers affected by localised rainfall deficits.

The main macroeconomic risk from a weaker monsoon is food-price pressures coinciding with softer rural purchasing power. Lower farm incomes can slow demand for consumer durables, two-wheelers, FMCG products and rural housing materials.

With the RBI revising its monetary policy stance from 'neutral' to 'calibrated tightening' and hiking the repo rate to 5.5 per cent after almost three and a half years, the inflation pressure is now official.

India is better placed than in many earlier episodes to manage this risk. The country has adequate rice and wheat buffer stocks for the public distribution system and emergency requirements. The Food Corporation of India can use the Open Market Sale Scheme to release surplus grain when necessary, augmenting supplies and moderating price pressures.

Existing food stocks are therefore an important macroeconomic stabiliser, not merely a food-security instrument.
Regular monitoring of prices and arrivals for rice, wheat, pulses, edible oils, onions, vegetables and other sensitive commodities can enable early action. Stock management, targeted market releases, efficient movement of grains across regions, calibrated imports where genuinely needed, and action against hoarding can collectively limit temporary supply shocks.

Supporting rural demand can be achieved through prompt payment of rural wages, timely procurement operations, effective implementation of rural housing and infrastructure projects, faster settlement of insurance claims, and improved access to short-term agricultural credit.

India's economy begins the rest of 2026-27 with a valuable advantage: robust growth in investment, construction, manufacturing and modern services. The core-sector data show that infrastructure-linked demand remains intact, while the monsoon outcome calls for greater attention to agricultural supply, food prices and rural incomes.

The appropriate policy stance is therefore one of confidence combined with preparedness. Continued capital expenditure, rapid execution of infrastructure projects, reliable energy supplies and support for private investment can sustain the industrial and services cycle. Alongside this, a focused agricultural response-centred on rabi preparedness, water management, food-stock operations and farmer risk mitigation-can contain the adverse effects of rainfall deficiency.

(The author is a senior research consultant at Chintan Research Foundation. The views are personal.)

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