India’s rural economy is becoming more resilient to weak monsoons as a growing share of non-crop activities, diversification into allied sectors, and rising irrigation coverage reduce the dependence of rural incomes on the rains, the Reserve Bank of India (RBI) said on Wednesday.
The findings come as India faces the likely impact of a severely deficient southwest monsoon in 2026. Published in the Monetary Policy Committee’s (MPC’s) report in a section titled ‘Indian Agriculture Sector Amid Weather Shocks’, the study provides data and empirical evidence for a trend that policymakers and researchers have highlighted in recent years.
While rainfall shortfalls, according to the report, remain a major driver of year-to-year fluctuations in agricultural output, the country’s rural economy is increasingly cushioned by resilient allied-sector activities.
It analysed growth in agriculture and non-agricultural rural activities over the years, using 2011-12 and 2022-23 base years. The study found that agricultural growth suffers more in years of higher monsoon deficits, while growth in the non-agricultural component remains close to 6 per cent across different rainfall conditions.
“In years of surplus rainfall, by contrast, agricultural growth averages 5.1 per cent, above the 4.3 per cent recorded in years close to the LPA (long-period average),” the report said.
The same pattern is evident in the regression estimates. Between 1994-95 and 2025-26, a regression of annual growth in agriculture and allied activities on rainfall shortfalls from the LPA produced a coefficient of minus 0.40, statistically significant at the 1 per cent level.
The rainfall shortfall measure explains about 39 per cent of the variation in agricultural growth. For the non-agricultural component, the coefficient is 0.01 and is not statistically significant. The pattern is also broadly stable across the two equal sub-periods.
Within the broader farm sector, the sensitivity to deficient monsoons is also becoming less significant because of increased irrigation coverage, new weather-resilient crop varieties and diversification towards less water-intensive crops, the report said.
The composition of agricultural output has also shifted towards allied activities.
Between 1999-2000 and 2024-25, the coefficient for agriculture and allied GVA was minus 0.44 and significant at the 1 per cent level, while the coefficients for milk, eggs, meat and fish, as well as the non-agricultural component, were small and statistically insignificant.
“These estimates suggest that growth in these activities is less closely related to aggregate rainfall shortfalls than agricultural GVA. Rolling correlations of the absolute deviation of rainfall from the LPA with growth in agricultural GVA and the rural-linked activity proxy have generally become less negative since the mid-2000s (irrespective of the window length) while remaining below zero throughout,” the report said.
Summing up its analysis, the RBI report said empirical findings suggest that while rainfall shortfalls remain important for agricultural output, their association with allied activities and other rural-linked activity has moderated over time.
