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Informist, Sunday, Jul. 26, 2026

NEW DELHI – India's inflation outlook is not just clouded by price pressures due to external uncertainties, but also by El Nino-led challenges, Finance Minister Nirmala Sitharaman said on Sunday. Because of irregular and uneven rainfall, water for irrigation and drinking is seen as a challenge, Sitharaman said at NDTV Profit's Business Leadership Awards event. 

"Inflation, therefore, cannot be just imported, but also our own want of rain and the less than normal monsoon can also add to the inflation," she said. 

Inflation in India has already seen an upward pressure after war broke out in West Asia in February. Oil prices have shot up, while commodity prices have jumped across the spectrum. According to latest data, India's headline inflation rose to an 18-month high of 4.38% in June, above the Reserve Bank of India's medium-term target of 4%, primarily because of higher food and fuel inflation. At 4.38%, India's retail inflation exceeded the RBI's medium-term target for the first time in 17 months. 

To add to this, India is facing super El Nino conditions this year. The India Meteorological Department has projected the southwest monsoon rainfall to be below normal at 90% of the long-period average. As of Wednesday, rainfall in the season so far has been only 81% of the long-period average. Historically, weaker monsoons have led to sharp increases in inflation in India.

The country's expenses have already shot up following the war in West Asia because of a sharp rise in global commodity prices, including key agricultural products like fertilisers. A super El Nino will only prompt the government to protect its large agriculture-dependent population with various fiscal measures such as high food and fertiliser subsidies.

According to Sitharaman, there is no need for the government to rethink its Budget numbers as of now despite these price pressures, as the government already accounted for increased spending in different funds such as the Economic Stablisation Fund. "Budget numbers I don't think I need to reconsider as of now, because there's been enough such funds created to meet with all these challenges that are happening," the finance minister said. 

The government's finances have been under pressure so far this year, with some economists expecting the Centre to miss its fiscal deficit target for FY27. For Apr-May, the government's fiscal deficit was over 12 times the year-ago figure. The sharp rise in the fiscal gap was due to 18% growth in total expenditure and a 2% drop in revenue. The Union Budget pegged the fiscal deficit for FY27 at 4.3% of GDP, or INR 16.96 trillion. The fiscal deficit target for FY27 will, however, be 4.5% of GDP, based on the downward revision in India's nominal GDP in the new series with FY23 as the base year.

The Economic Stabilisation Fund was set up earlier in 2026 with a INR 1-trillion corpus to meet expenditure needs arising from uncertain geopolitical conditions.  End

Reported by Priyasmita Dutta

Edited by Avishek Dutta

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