Daijiworld Media Network – New Delhi

New Delhi, Jul 16: El Niño years have historically had a significant impact on India's agriculture and inflation, leading to weaker monsoon rainfall, lower crop production and higher food prices, according to a 25-year study by JM Financial.

The brokerage analysed 13 economic and agricultural indicators, including rainfall, kharif sowing, food production, inflation, tractor and two-wheeler sales, agricultural gross value added (GVA), reservoir levels, power demand and credit growth.

The study found that El Niño years typically recorded a cumulative rainfall deviation of -10.65 per cent, a 1 per cent decline in kharif sowing area, a 4 per cent year-on-year drop in food production, and an average 60 basis point increase in food inflation compared to La Niña years.

Tractor sales emerged as one of the sectors most affected by weaker monsoons, growing by only 3.5 per cent during El Niño years against 10.7 per cent during La Niña periods.

JM Financial also noted that credit offtake among micro, small and medium enterprises (MSMEs) weakened significantly during El Niño episodes, reflecting the sector's vulnerability to weather-related disruptions.

Since agriculture contributes around 18 per cent of India's Gross Value Added (GVA), the report found agricultural GVA remained largely flat during El Niño years and was about 350 basis points lower than during La Niña periods.

Despite the adverse impact on agriculture, the study identified some positive trends. Two-wheeler sales grew by an average 12.1 per cent during El Niño years, nearly double the growth recorded during La Niña periods.

Credit growth also improved by around 350 basis points, largely driven by consumer and gold loans. FMCG companies reported better volume growth during El Niño years than in La Niña years, although the highest growth was observed during years with neutral weather conditions.

The report further noted that although average maximum temperatures during El Niño years were only 0.20 degrees Celsius higher than during La Niña periods, they contributed to a sharp increase in peak electricity demand.

According to JM Financial, forecasts from global weather agencies indicate hotter and drier conditions this year with the onset of El Niño. However, India's rising power demand has largely been met since FY25, as reflected in a shrinking power deficit.

The brokerage also observed that after a weak June, rainfall has gathered pace in July, the most crucial month for India's southwest monsoon. July accounts for nearly one-third of the season's rainfall and plays a key role in kharif sowing, reservoir replenishment and groundwater recharge.

Following a 39.8 per cent rainfall deficit in June, India would require approximately 346 mm of rainfall in July, or 123.5 per cent of the month's long period average (LPA), to fully offset the cumulative rainfall deficit, the report said.