Farm output risk may cause stagflationary shock for India, says report
This story was originally published at 20:19 IST on 28 July 2026
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MUMBAI – Global agricultural production is at an increasing risk from the dual shocks of disruptions to fertiliser supply and a strengthening El Nino. Moreover, rising crude oil prices could raise the cost of bringing food to the table. These developments could hit countries like India that are vulnerable to food price shocks, according to a report by BMI, a Fitch Solutions company.
"With food accounting for 36.8% of India's Consumer Price Index basket, food-price shocks can pass through quickly to headline inflation, eroding household purchasing power and ultimately weighing on real GDP growth," the report said. Higher food prices would constitute a broadly stagflationary shock for India, raising inflation while dampening growth, employment, and fiscal and external balances, the report said.
The interaction between higher input costs and greater weather uncertainty is particularly concerning. Producers may respond by adopting more cautious fertiliser application strategies, thereby amplifying downside risks to yields, the report said.
The researchers at BMI ran computer simulations using the World Bank's global food data. The report tested different levels of severity, positive shocks of 20% and 40% lasting for one quarter and, under a more severe scenario, for two quarters. They added a 10% increase in the cost of agricultural raw materials to simulate the rising cost of fertiliser. The report cited the 2022 Russia-Ukraine war and noted global food prices had risen 33% after that war.
"The simulations also point to important nonlinearities: larger and more persistent shocks inflict disproportionately greater economic damage, possibly reflecting a sharper erosion of household purchasing power and narrower policy space," the report said.
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Reported by Ritwika Dutta
Edited by Shubhayan Bhattacharya
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