In 2026, India's rural economy faces a dual threat: a likely monsoon shortfall and a steep increase in input costs, both of which might have a negative impact on agricultural output, farmer income, rural demand, and food inflation.
Systematix reports a bleak picture for the agriculture industry, citing a below-normal rainfall and rising input costs due to global conflicts.The combination of a predicted below-normal monsoon in 2026 and higher agro-input costs as a result of the US-Iran confrontation offers a problematic picture for agricultural productivity, rural consumption, and inflation management," the research stated.

This transition follows a high 2025 monsoon and parallels the disruptive 2023 deficit, which previously impacted Kharif output and rural consumption.ENSO-neutral conditions are now in place and are expected to last through April and June (80% chance). However, El Nino is anticipated to develop with a 61% probability in May-July and last until the end of 2026, with a 25% risk of becoming a very strong event, according to the analysis.
Citing Skymet Weather, the study projected the southwest monsoon at 94% of the long-period average, which is considered below normal. Rainfall is projected to decrease in the second half of the season, especially in August and September, while the beginning period from June to July may remain constant.The uneven distribution poses a significant risk to northern, western, and central India.The South-West monsoon continues to be essential to India's economic growth, as a robust kharif harvest raises rural incomes and drives demand for FMCGs, tractors, autos, two-wheelers, jewellery, and consumer durables, according to the research.
The climatic threat is exacerbated by the US-Iran confrontation, which has hindered shipping via the Strait of Hormuz. "Compounding the weather risk is the ongoing US-Iran conflict, which has disrupted shipping through the Strait of Hormuz, a critical route for fertilisers, raw materials (ammonia, phosphoric acid, sulphur, natural gas/LNG), and fuel," the research said.

The consequent supply chain disruptions have already raised global fertiliser prices, adding to the financial strain on Indian farmers and the federal government.
The analysis warns that increased fertiliser and food subsidies, combined with under-recoveries on petroleum goods, could strain the government's resources. If global prices continue high and monsoon conditions hamper domestic demand, the subsidy burden may increase by Rs 10,000 crore to Rs 25,000 crore in FY27.