India’s agriculture sector is more resilient to the effects of El Niño this year, as per a report by Elara Capital. Structural changes in rural India, including diversified income sources and enhanced irrigation coverage, have lessened the impact on agricultural growth and incomes. Factors like expanded irrigation, crop diversification, higher minimum support prices, improved credit access, and increased non-farm rural earnings have collectively bolstered the sector’s resilience.
Reservoir levels in rural India are favorable, supported by two consecutive years of above-average monsoon rainfall, which is expected to mitigate any immediate weather-related challenges. The potential strong El Niño event, forecasted to peak after the main sowing season, might limit damage to summer crops. The National Oceanic and Atmospheric Administration (NOAA) has indicated a 70% chance of El Niño developing between June and August 2026, with a possibility of it becoming a strong event lasting till year-end.
The India Meteorological Department (IMD) has predicted monsoon rainfall at 92% of the long-period average (LPA), with a 35% chance of it falling below 90% of LPA. The report also noted a diminishing historical link between El Niño events and agricultural gross value added (GVA). While past El Niño occurrences negatively impacted farm growth, recent instances have shown less effect despite similar rainfall deficits.
Rural income diversification has reduced vulnerability, with agriculture now contributing about one-third of household income, supplemented by wages, non-farm activities, salaried jobs, and livestock earnings. The use of gold loans in rural and semi-urban areas has emerged as a financial cushion, aiding households in managing liquidity during stressful periods. Notably, previous El Niño events did not significantly dampen rural demand, with sectors like two-wheelers, fertilizers, and fast-moving consumer goods (FMCG) displaying resilience during such times.
El Niño, a cyclical climate phenomenon, typically results in reduced monsoon rains in countries like India while causing heavy rainfall in parts of South America.
