India File: Monsoon windfall vs tariff headwinds

Reuters

23-04-2025

(This was originally published in the India File newsletter, which is issued every Tuesday. Sign up here to get the latest news from India and how it matters to the world.)
Indian markets got a double-dose of good news last week from the country's government agencies, which forecast more plentiful-than-average monsoon rains while reporting easier-than-expected consumer inflation. Both bode well for economic growth, but will they be of much help in the face of global economic turmoil stirred up by U.S. tariffs? That's our focus this week.
And, India's government has drafted a proposal to ease its nuclear liability laws, which have long hindered cooperation with foreign firms to develop the nuclear power sector. Scroll down for details.
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BLESSINGS OF THE MONSOON
In India, people don't just talk about the weather, they rely on it - especially the annual monsoon rains - as a pillar of the economy, ensuring stable supplies of food, water and electric power.
Nearly 45% of India's workforce and 15% of its GDP are tied to agriculture, so it was no small blessing last week when the India Meteorological Department forecast this year's monsoon would bring plentiful rains - about 5% above an average year.
This is a rare bit of good news for the world's fifth-largest economy as it grapples with slowing growth and the fallout from U.S. President Donald Trump's erratic tariff policies, which threaten to stall the global economy.
Climate change also looms as a threat to India, where droughts have routinely knocked growth by anywhere from 50-200 basis points a year since the start of the millennium, according to government estimates. Heatwaves and flooding have also become more frequent and are taking a heavy human toll.
For now, the fortuitous monsoon forecast has helped to put a damper on prices of rice and cotton, where bumper harvests are more likely this year, while shares of fertiliser and seed companies rose in anticipation of strong demand. Analysts said it also lent support to India's stock markets, which were already on a recovery path with the best weekly gain last week in more than four years.
"(The forecast) adds to the happy tidings on the food inflation front," said Dharmakirti Joshi, chief economist at Crisil.
The government last week announced that India's retail inflation slipped to a more than five-year low as food prices continued to moderate, in part a lingering effect of last year's good monsoon.
India's monsoons, typically lasting from June to September, deliver nearly 70% of the rain needed to water crops and recharge reservoirs and aquifers. Nearly half of the country's farmland lacks any irrigation, relying on the monsoon to grow a wide array of crops including rice, corn, pulses, cotton and soybeans. Analysts estimate that a bad monsoon can cut India's growth by 20-30 basis points.
That's at a time when India, the world's fastest-growing major economy, has a lot at stake in the rural sector as stagnant wages and legacy inflation weigh on urban consumer spending. The central bank estimated growth for the financial year to next March at 6.5%, down from its earlier estimate of 6.7%. And while the government maintains that Trump's tariffs will not affect growth, private economists cite them as a major reason for cuts to growth forecasts of 20-40 basis points.
If good rains help to further lower food prices, they could keep inflation within the central bank's comfort level and allow more rate cuts to stimulate growth.
Crisil's Joshi warns, however, that the weather doesn't always bring good news. "Watch out for weather disruptions such as heatwaves," he said.
Weather experts and agriculture scientists worry that above-average temperatures in March, following a warmer February, could damage winter-sown crops such as wheat, chickpeas and rapeseed.
Some experts believe climate change is to blame in recent years for the heat waves during April-June, typically India's hottest months, followed by excessive monsoon rains that trigger floods.
India recorded more than 40,000 suspected heatstroke cases last year as a prolonged heatwave killed more than 100 people. Temperatures in north India soared to nearly 50 degrees Celsius (122 degrees Fahrenheit).
Torrential rain, floods and landslides kill scores of people every year and damage property and infrastructure. Last year, more than 200 people were killed after heavy rains triggered landslides in the southern state of Kerala, while heavy rains hit major cities such as New Delhi and Bengaluru as well.
Can this year's monsoon help India weather the tariff-driven turbulence ahead? How should India respond to climate change and its influence on weather patterns? Write to me with your views at [e-mail], opens new tab.
THE WEEK'S MUST-READ
India is planning to ease its nuclear liability laws in hopes of attracting U.S. equipment suppliers, who have kept their distance for fear they'd risk unlimited exposure in the case of an accident.
Prime Minister Narendra Modi's government aims to expand nuclear power capacity to 100 gigawatts over the next two decades, or 12 times the current capacity. Prospective imports of nuclear power equipment could also serve as a bargaining chip in trade negotiations with Washington.
Don't miss this exclusive report about a draft law to remove the legal hurdle that has thwarted nuclear power development despite a landmark 2008 India-U.S. civil nuclear deal.
MARKET MATTERS
Indian stocks, bonds and the rupee have turned positive for 2025 on expectations of an improving domestic economy.
Benchmark stock indexes on Monday logged their biggest five-day gain in four years, boosted by shares of financial services firms after large private-sector banks posted strong earnings.