Summary of this article
Weak monsoon may have a smaller impact on India’s economy
Higher power demand could support GDP despite weaker farm output
IMD forecasts below-normal August-September rainfall amid strengthening El Niño
A below-normal monsoon may not hurt India’s economy as initially feared, according to Motilal Oswal Asset Management Company (AMC), which believes that stronger electricity demand, industrial activity and infrastructure spending could cushion the impact of weaker farm output.
In its August 2026 monthly market outlook, Prateek Agrawal, managing director and CEO of Motilal Oswal Asset Management, acknowledged the risks from deficient rainfall, but argued that the broader economy could remain resilient. “Lower monsoons would overall deliver better gross domestic product (GDP) output on better power demand, better mining production and infra build. With better industrial activity, loan growth may also improve,” Agrawal wrote in the report.
The fund house also expects the impact of rainfall deficit to ease if weather conditions improve. “As monsoon shortfall continues to reduce, the impact may be less severe than anticipated,” Agrawal said.
The monthly market outlook said that India’s 2026 kharif sowing remains behind last year’s pace as rainfall has stayed below normal. “India’s 2026 kharif sowing is trailing last year’s pace by about 6 per cent, with total acreage at 531.25 lakh hectares as of mid-July. This lag is driven by a 24 per cent rainfall deficit and emerging El Niño conditions,” Agrawal wrote.
According to the report, while rice acreage has recorded a relatively smaller decline, pulses, oilseeds and cotton have seen a sharper fall in sowing. To reduce the impact of dry conditions, the government is encouraging farmers in drought-prone regions to switch to short-duration and low-water-intensive crops, such as millets, maize and green gram. The fund house added that sowing could still improve if rainfall strengthens during the latter part of the season.
Even if agricultural production comes under pressure, Motilal Oswal AMC sees a mixed outcome for the rural economy. “Lower crops may require government handholding for a section of the population; however, it could imply better prices for many others,” Agrawal wrote.
According to the monthly market outlook, prolonged heatwaves have led to an increased electricity demand and are creating new investment opportunities in the power sector. “Summers are elongated and hot. It’s a cause for concern for some, but probable opportunity for some. Inflation can help government finances,” Agrawal wrote.
India, which is the world’s third-largest power market, has already experienced the effect of hotter weather this year. Citing recent demand trends, Agrawal wrote, “Base power demand grew 11 per cent year-on-year (y-o-y) in June on rising temperatures and delayed monsoons, with few days showing demand growth reaching 23 per cent on June 29, and 21 per cent on June 30.”
Although peak demand in June stood at 265 GW, lower than the record 270.8 GW recorded in May, the report said that strong additions in solar power capacity has helped meet daytime electricity demand while keeping merchant power prices low.
The assessment comes as the India Meteorological Department (IMD) has forecast below-normal rainfall during the second half of the southwest monsoon season (August-September). The weather office expects rainfall in August to remain below normal, at less than 94 per cent of the Long Period Average (LPA), as moderate El Niño conditions over the equatorial Pacific are likely to strengthen through the remainder of the monsoon season. However, parts of peninsular India, central India, northern northwest India, and east and northeast India are expected to receive normal to above-normal rainfall.
The IMD has also forecast above-normal maximum temperatures over most parts of the country during August, while minimum temperatures are expected to remain normal to above normal across most regions.
On the climate outlook, the IMD said moderate El Niño conditions prevailing over the equatorial Pacific are likely to strengthen during the remaining southwest monsoon season, which could weigh further on rainfall. At the same time, it said neutral Indian Ocean Dipole (IOD) conditions are expected to continue, although some global forecasting agencies have indicated that a positive IOD may develop during September, which could provide some support to the monsoon later in the season.
