TOPSHOT – A woman farmer looks at her paddy crops submerged in floodwaters after the Ravi river overflowed following heavy rains in a village near Ajnala, around 28 km from Amritsar on September 5, 2025. Flooding across the northwestern state killed at least 29 people and affected over 250,000 last month, with the state’s chief minister calling it “one of the worst flood disasters in decades”.
Narinder Nanu | Afp | Getty Images
Large swathes of Indian farmland have been affected by floods and torrential downpours, with the key agricultural state of Punjab facing its worst floods in 40 years.
While crops have been damaged, analysts forecast that the overall impact on inflation for fiscal year 2026 is not going to be severe enough to push it past the midpoint of the central bank’s target of 4%.
Limited impact on cereal production and sufficient stocks are expected to keep food inflation in check over the near future, HSBC said in a report on Monday, adding that it was “not too worried about underlying inflation momentum.”
Breaking its nine-month downward trend, inflation in August inched to 2.1%, from 1.5% in July due to a rise in food prices compared with the previous month, led by vegetables, edible oil, egg, fish, meat and fruits.
The overall impact of incessant rains is limited on inflation due to a higher base, but it can be greater if rains continue into the harvest season, Bank of America Securities said in a report on Friday.
Analysts including at BofA expect the cut in goods and services tax, which will come into force from Sept. 22, to keep inflation lower.
Reportedly, 3 lakh acres of farmlands have been damaged and according to the Punjab state government half a million people across 23 districts have been affected by floods.
Other states affected by heavy rains include Himachal Pradesh and Jammu & Kashmir in the north of the country and Telangana in the south.
Excess rains in August across Punjab, Rajasthan and Telangana “are creating a concern for crops at their advanced growth stages,” warned S&P Global-backed research and risk advisory service firm Crisil in a report on Saturday.
Benign inflation so far has allowed India’s central bank room to cut rates, spurring domestic growth at a time when the country faces trade worries owed to the U.S. steep 50% tariffs on its exports.
On Sunday, the Indian Meteorological Department said that conditions are favorable for withdrawal of monsoon from parts of Punjab and other states over the next three days.
But northeast India and parts of Maharashtra, another important state for farm produce, are expected to see heavy rainfall until Wednesday, IMD said.
“Excess rainfall in certain parts of the country (particularly Punjab) had caused some worries over near term inflationary pressures but all-India daily data on food items do not indicate any major impact as yet for the month of September,” Citi Research said.
Citi had cut its average headline CPI forecast for India for fiscal year ending march 2026 to 2.9% from 3.2% earlier.
“India is witnessing a very broad-based lowering of inflation,” Citi said.
With inflation expected to remain muted and the government focused on driving growth to mitigate the impact of U.S. tariffs, analyst expect room for further easing of monetary policy.
“We believe the RBI will ease rates once again in 4Q25, taking the repo rate to 5.25%,” HSBC said.
