The RBI has flagged below-normal monsoon rainfall as a key risk to India's growth and inflation outlook, with the rainfall deficit widening to 42.2% as of June 21.
The central bank expects GDP growth to moderate to 6.6% in 2026-27, while inflation is projected at 5.1%. A weaker monsoon could further complicate this balance.
Despite external uncertainties, India continues to benefit from resilient domestic demand, healthy foreign exchange reserves and a manageable current account deficit.
RBI Warns Weak Monsoon Could Complicate Growth-Inflation Outlook
With the southwest monsoon running significantly below normal, the Reserve Bank of India has warned that deficient rainfall could complicate the country's growth and inflation outlook in the months ahead
Summary
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A rain-deficient monsoon could threaten India's economic growth and inflation dynamics. The India Meteorological Department predicted below-normal southwest monsoon rains for the current year.
The national rainfall deficit widened to 42.2 per cent of the long-period average as of June 21, 2026, rising from 28.4 per cent on June 14.
The Reserve Bank of India published these warnings in its June bulletin. "An adverse south-west monsoon, if materialised, may weigh on the domestic growth-inflation outlook," the State of the Economy article said.
The document said that the assessments belong to the authors and do not represent the official stance of the central bank.
Domestic Growth and Inflation
Growth projections have moderated. The central bank expects real GDP growth to reach 6.6 per cent in 2026-27, down from the 7.7 per cent recorded in 2025-26 according to provisional estimates. Consumer price index inflation is projected at 5.1 per cent for the current financial year.
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Despite global challenges, India's economy expanded by 7.8 per cent in the fourth quarter of 2025-26. Private consumption and fixed investment drove this expansion.
High-frequency indicators for the first two months of 2026-27 point to continued economic momentum, supported by resilient domestic demand and urban consumption.
Consumer price pressures increased recently. CPI inflation rose to 3.9 per cent in May 2026, up from 3.5 per cent in April. Broad-based increases across food, fuel, and core components caused the uptick.
"The rise in transport fuel prices reflects the latest adjustment of retail prices by oil marketing companies," the report said. Daily price data up to June 18 showed that broad-based food price increases continued into June, the authors said.
External Sector and Liquidity
India shows strong external resilience, supported by a contained current account deficit and adequate foreign exchange reserve buffers. The economy entered the period of turbulence from the West Asia conflict with stronger fundamentals to absorb external shocks.
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"India maintained a consistently high growth, anchored inflation expectations, sustained fiscal consolidation, manageable current account balance and foreign exchange buffers over the previous few years, which adds to its strength vis-à-vis similar other events in the past," the report said.
Foreign direct investment inflows gained momentum recently. However, foreign portfolio investment recorded net outflows since March 2026. The expansion of the fully accessible route to longer-tenor government securities and tax exemptions for foreign investors will likely boost demand for sovereign debt and support capital inflows.
Banking system surplus liquidity moderated in May. A rise in currency in circulation, RBI foreign exchange operations, and increased government cash balances drove this tightening. Liquidity conditions will ease as the government draws down cash balances following the central bank's surplus transfer, the report said.