Surplus Monsoon Sparks Rural Revival: Elara Capital Sees Inflation Relief, Rate Cut Window

India’s Southwest Monsoon has delivered a 10% surplus over normal rainfall so far this season—the highest mid-July surplus since 2021—setting the stage for record Kharif sowing, improved reservoir levels, and a stronger rural economy, according to a new report by Elara Capital.

“The favourable advancement of the Monsoon this year bodes well for Kharif output, which should be an added positive after an encouraging 2025 Rabi season,” the report states.

Central and Northwest India have seen a remarkable surplus of 34% over the long-period average (LPA), with Rajasthan clocking an unprecedented 109–129% surplus across its western and eastern regions. East Madhya Pradesh and Kutch & Saurashtra regions also saw surpluses of 80–86%. Meanwhile, rainfall deficits in South and East & Northeast India are being watched, though overall coverage remains strong, with the lowest percentage of deficient area in five years.

Kharif sowing has reached a record ~59.8 million hectares as of July 11, growing 6.7% year-on-year. Pulses sowing rose 25.7%, coarse cereals grew 16.6%, and Bajra planting surged nearly 49%. While cotton and soybean sowing declined modestly, the shift toward more remunerative crops like sugarcane and corn signals a responsive, diversified farm economy.

Reservoir levels have also seen significant improvement. As of July 10, overall storage stood at 51.8% of capacity—nearly double the 10-year average of ~28.4%—with South India leading at over 61%.

“This overall improvement in reservoir levels bodes well for the crop outlook and rural demand,” Elara Capital notes.

The investment firm expects this strong rural performance to help keep food inflation in check, forecasting FY26 CPI inflation to come in at least 30 basis points below the RBI’s 3.7% projection.

“We see room for another 25bp rate cut. While our base case remains a post-Monsoon rate cut, we do not rule out the possibility of an August policy cut,” the report adds.

Elara Capital also highlights early signs of rural recovery—including higher crop realisation, rising rural wages, improved government spending, and effective cash transfer schemes—making them “constructive on the prospects of rural demand” in the months ahead.

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