India's agriculture output mitigated by government measures

The El Niño resulted in poor monsoon rains in India, while localized flooding is an unfolding tragedy. Seasonal rainfall was 14% below normal, and the country now has experienced two poor monsoons in a row. The implications for growth have been greater than for inflation, so far. 

Agriculture growth has slowed and rural demand has weakened. Indeed, agricultural GDP growth on a four-quarter rolling quarter basis is barely positive and is acting as a drag on the broader economy. Furthermore, reduced government price supports, with only modest hikes in minimum support prices (MSP), are weighing on rural incomes and hurting demand for agriculture-related capital and durable goods such as tractors. 

Public spending on rural employment-generation programs has also decelerated in recent years, weighing on consumption of durable goods, including motorcycles and tractors. However, given the government's proactive food management measures, food inflation has been largely manageable, outside a few items. As such, the RBI has been able to pursue monetary easing.