The super El Niño weather phenomenon is emerging as a major headwind for the Indian economy, with the country experiencing its lowest rainfall in over a decade from June to September. This has led to reservoir levels being 28% short of full capacity by the end of September, posing risks to winter crops and overall agricultural output, according to Nomura and the World Bank.

Foreign Minister Subrahmanyam Jaishankar warned last week that the combination of El Niño and existing fertilizer shortages could lead to a "major food crisis" in the coming months. S&P Global Market Intelligence forecasts India's rural economy to slow materially in 2026 and 2027, while Morgan Stanley estimates agricultural sector growth to decelerate to 1.6% in the financial year ending March 2027, down from 3.5% over the past three years.

Inflation in India has risen for 10 consecutive months, surpassing the central bank's 4% target in August. In response, the Reserve Bank of India on Wednesday raised its benchmark repo rate by 25 basis points to a 1-year high of 5.50%, its first hike since 2023. Meanwhile, U.S. trade representative Jamieson Greer indicated on Thursday that a trade deal with India is not "imminent," with Finance Minister Nirmala Sitharaman confirming an impasse in talks.