India’s main monsoonal rain season started well in advance of the norm this year, with its earliest onset in about 16 years. As early as late May, the Indian Meteorological Department (IMD) predicted an above-average monsoon season for 2025. This renewed forecast follows on the heels of an anticipated above-average 2024 season. This potentially positive weather development would be welcome news for India’s nascent economic recovery, as well as the directions of the country’s central bank monetary policy.
The IMD’s forecast indicates that the monsoon rains, which typically begin in May, will continue to play a crucial role in India’s agricultural productivity and overall economic stability. After all, a good monsoon significantly boosts agricultural output, helping to boost both rural incomes as well as rural consumption. This news is especially important for a country where nearly 70% of the population is employed by the agricultural sector.
Extreme rain tends to scramble sedentary patterns of everyday life, not least in crowded cities such as Mumbai. In November, the city was hit by heavy rains that caused extensive flooding, disrupting men’s daily lives and public transit networks. These extreme weather events only deepen the already dire issues for businesses and residents.
A positive monsoon should further strengthen the hand of India’s central bank, the Reserve Bank of India (RBI). That’s no small feat considering the disruption and that’s the upside. The RBI took a dovish monetary policy turn with its last few policies, including frontloading several policy rate cuts. These cuts, effective as of last week, are touted to help the economy grow. Analysts expect this kind of policy to have ripple effects on India’s real economy. They hope that it will increase consumer spending and investment.
The possibility of a second straight year of above-normal monsoon precipitation is fueling some optimism about the agricultural sector’s prospects. Farmers are starting to get preparations in place for the 2023 growing season. Encouraged by expectations of good weather and good monetary policy, they will overinvest on their crops.