Growth could dip to 5.5% in FY24 in case of severe El Nino: Nomura

India could be the worst affected economy in Asia, where a severe El Nino could shave off 0.4 percentage points of growth and add 0.3 percentage points to its inflation for FY24, said Nomura economists.

“Our analysis suggests that below-normal rains are more likely to adversely impact growth, while the inflation impact is less certain, partly because India is a net food exporter,” Nomura economists Sonal Varma and Aurodeep Nandi said in a note Friday.

Indian growth is expected to dip in FY24 due to the global economic slowdown. Nomura expects growth to fall to 5.9% in FY24, compared with 7.2% the previous year.


Inflation is projected to fall to 5% this fiscal.

However, a mild El Nino could also add 0.1 percentage point to the inflation forecast.

“The RBI estimates that adverse climate events can add ~50bp to headline CPI inflation, but we expect a more muted impact this year due to falling agriculture input costs and proactive government responses,” Varma and Nandi noted, claiming that the link between monsoons and inflation has been “quite patchy”.

Strong headwinds

• Mild El Nino could lower growth by 0.2 percentage points
• It could add 0.1 percentage points to inflation
• Fiscal and supply-side measures are the first line of defence

The economists further said, “On the policy front, we see fiscal and supply-side interventions as the first lines of defense.”

The government announced a stock limit on wheat on June 12. It had earlier imposed holding restrictions on tur and urad to check prices.

	GDP growth for 2023 (%, y-o-y)	Mild El Nino (percentage point impact)	Severe El Nino (percentage point impact)
China	5.1	0	0
India	5.9	-0.2	-0.4
Indonesia	4.7	0	-0.1
Philippines	5.5	0	-0.2
Thailand	4	0	-0.2
Average		-0.1	-0.11

India's data is for fiscal year.
Nomura estimates

“There could also be a fiscal impact via measures such as expanding the scope of farm income support, among others, with an eye on the upcoming state (Q4 2023) and general elections (Q2 2024),” highlighted Nomura economists.

They also said that the role of monetary policy in such cases was limited unless food inflation triggers higher core inflation and gives a push to inflation expectations.

“At the margin, higher inflation, if it materialises, could delay the timing of the first rate cut by a quarter, compared to our current baseline of the rate easing cycle starting in October this year,” economists said.

Reserve Bank of India’s monetary policy committee held the policy rate at 6.5% for the second consecutive time in its June meeting. Fitch Ratings expects RBI to start cutting rates from early next fiscal, whereas OECD expects a rate cut in mid-2024.