West Asia war, energy crisis, and weak monsoon are set to pose a macroeconomic challenge to India this year.
All this has led Zerodha founder Nithin Kamath to warn that the country may have “a terrible year ahead” and this may lead the RBI to raise policy rates earlier than expected.
In a post on X, the head of the broking platform said that all the challenges combined can turn a “bad situation” into a “crisis”.
Explaining the adverse impact of El Niño on monsoon in India, Kamath said, “Every few years, the Pacific Ocean warms up abnormally, and that phenomenon is called El Niño. When it happens, India's monsoon weakens. This year, it looks like a super El Niño is developing, and the IMD is already forecasting rainfall 6 percent below normal for 2026.”
While a 6 percent deficit from normal rainfall may not look like a major crisis, Kamath highlighted that 70 percent of India’s annual rainfall comes from the monsoon, and 60 percent of farmers depend entirely on it.
“If history is any guide, we may have a terrible year ahead,” he said.
In 60 percent of El Niño years since 1951, India has seen below-average rainfall. In 2009, rainfall fell to just 78 percent of normal, the worst in 37 years, he said in the post.
Explaining the ripple effect of a weak monsoon, Kamath said that lower-than-average rainfall would mean weaker harvests, which will lead to higher food prices and higher inflation.
“Food is one of the biggest expenses in a household budget. This is now layering on top of the unholy mess created by the closure of the Strait of Hormuz,” he added.
The closure of the strait has wiped out about 20 percent of the world’s oil and 20 percent of LNG supplies. India is dependent on the route for 80-90 percent of its oil and 40-50 percent of its gas.
He said that the Indian crude oil basket, which averaged $114 per barrel in April, is at $106 per barrel in May. This is even as the crisis is anticipated to drag further.
He warned that the RBI may have to raise policy rates if food and fuel prices rise simultaneously.
“Beyond a point, it will have to start hiking rates, and that is when a bad situation starts to feel like a crisis,” he said.
