Monsoon Hope, Tariff Woes

DECODE THE NEWS

CRISIL Predicts Growth Relief From Monsoons, Scope For Rate Cuts

What

Even as tariff uncertainty weighs heavily on the markets, some good news has come from another uncertain factor that affects our economy — monsoons. The Indian Meteorological Department (IMD) predicts above-average monsoon rains in 2025, and that’s key for keeping food inflation under control. It gives leeway for flexibility in monetary policy decisions.

“I think we see two rate cuts happening in the rest of the fiscal year, and that's because inflation is nudging down. We expect headline inflation somewhere around 3% (for May), so that's pretty soft,” said Dharmakirti Joshi, chief economist at rating agency CRISIL.

In 2025, the central bank’s Monetary Policy Committee (MPC) cut interest rates twice, by 25 basis points twice, bringing the base rate down to 6%. It also changed its stance from neutral to accommodative, providing relief long after the market had been waiting for it. This easing, in addition to lowered inflation, can aid consumption in the economy.

“Low food inflation is specifically good since it has a very large weight in the consumption basket. It eats into your discretionary spending ability,” said Joshi. Agricultural production also makes up for 18% of the GDP and can also push up rural consumption which has also been showing signs of revival.

The market also expects healthy wheat as well as pulses production this year. These are “the ruby indicators from the second advance estimates”. Food inflation, which makes up for around 46% of total retail inflation, was strong last fiscal year due to extremely high vegetable prices.

“I think we have become more resilient in some of the crops like rice, wheat, etc, because of new varieties. But the frequency of these weather shocks also increased, while we become more resilient. So it's an interplay of both these that determines, but for this year I think the tidings are happy, I mean so far,” said Joshi.

What Next?

As the silver lining has turned a little brighter, clouds do exist on the macroeconomic front, in the form of US tariffs. India, as well as others, will face both direct and indirect impacts of these tariffs.

“Direct impact is, of course, linkages with the US, but indirect impact is collateral damage. Economies like China or others might start dumping, of which I think there is some indication,” said Joshi.

As an indirect impact of US tariffs, private capex is expected to remain muted as it has for the last two years. FDI inflows have not been very strong for the last couple of years.

INDIA PAKISTAN CONFLICT

Won't Tolerate Nuclear Blackmail, This Ceasefire Just A Pause: PM Modi

Addressing the nation on Monday evening, Prime Minister Narendra Modi said that India was only putting a pause on its military action on Pakistan and will continue to monitor the neighbouring country.

"We want to make clear that we have only paused our action on Pakistan's terror hubs and military bases. In the coming days, we will measure Pakistan's every step," Modi said.

Not only did the prime minister thank the armed forces for their work, but he also made mention of 'Made in India' war weapons that intercepted the drones and missiles from Pakistan. "We have shown the might of 'Made in India' defence equipment in 21st-century warfare."

Modi also said that India will not tolerate Pakistan's nuclear threats. "We will not tolerate any nuclear blackmail. India will take strict action against terrorism that Pakistan has been supporting behind the veil of these threats."

India also made clear that if talks are to be held with Pakistan, they will only be about terrorism and Pakistan-Occupied Kashmir. "Terrorism and talks cannot happen together. Terrorism and trade cannot happen together," Modi said.

Meanwhile, here are the updates on travel and logistics affected by the India-Pakistan tensions.

Flights: Air India has announced that it is gradually resuming flights to and from several key destinations, including Jammu, Srinagar, Leh, Jodhpur, Amritsar, Bhuj, Jamnagar, Chandigarh, and Rajkot. Meanwhile, IndiGo has confirmed that its services are steadily returning to normal across affected routes. However, passengers have been advised to anticipate potential delays and last-minute adjustments as operations stabilise.

Ships: No changes on Monday

Airports: The 32 airports in northern and northwestern India, which were shut down amid airspace restrictions due to escalating tensions with Pakistan, have now reopened for civilian flights. Key airports like Srinagar, Chandigarh, and Amritsar are once again operational. The Airports Authority of India (AAI) has advised travellers to stay updated by checking flight statuses directly with airlines and monitoring their websites for the latest information.

Ports: No changes on Monday

Cargo: No changes on Monday

—🇨🇳🇺🇸 Xi-Trump Tariff Détente. After a heated trade war between the US and China, the two superpowers finally reached a temporary tariff détente. American and Chinese representatives announced on May 12 that the US will cut its tariffs on China from 145% to 30% and that China will cut its tariffs from 125% to 10% for a 90-day period. This trade war, which began when US President Trump announced his ‘Liberation Day’ tariffs on April 2nd, rocked markets across the world, including in India, and halted trade worth 600 billion dollars, according to Reuters. Since the announcement, oil prices in Asian markets rose by 3%, buoyed by a hope of increased demand and industrial activity.

—📈 FMCG Pulse. Is India’s demand recovery truly on the mend? That is what fast moving consumer goods (FMCG) sector giants have been saying in the past couple of weeks, with Britannia managing director and vice chairman Varun Berry being the latest. Barry was reported by The Economic Times as saying in an earnings call that the recovery won’t be like a “hockey stick” but gradual. Barry said in an earnings call, “We are hoping to see healthy growth, both volume as well as revenue.” FMCG majors in India have seen a difficult few years with inflation and muted demand. The Core reported last week on how they have changed strategy to keep up.

—🎦 Sad Time For Cinema Halls? PVR-Inox, the country’s largest multiplex company, reported a loss of Rs 106 crore in the Q4 quarter, as per Reuters. The company said it’s because of subpar releases and reduced urban spending, though the cinema business has been suffering since 2020, when people transitioned to primarily watching OTT content. Still, 2023 saw a rise in Indian cinemagoers when the Shah Rukh Khan starrers Jawan and Pathaan released. But, as The Core had reported last year, the merger of PVR and Inox had hoped to create a monopoly. But the multiplex chain struggles to find money in the movies.

—🔥 Cooling Crisis. The Earth is getting hotter each year and this obviously affects the hotter countries more. It's no surprise that Indians bought 14 million ACs last year and, as a new AFP report highlights, India will need many more in the coming years. This is because in some parts even urban India, temperatures have been soaring up to 50 degrees Celsius, something earlier only seen in the remote desert areas of the country. While experts have repeatedly called for the adoption of passive cooling, these techniques have hardly found takers. Last summer, The Core had reported that it was only restricted to the mid and premium residential market.

PODCAST

On Episode 579 of The Core Report, financial journalist Govindraj Ethiraj talks to Ambareesh Baliga, Veteran Market Expert as well as Abhishek Goenka, Founder and CEO at India Forex & Asset Management.

• Indian stock markets have their best sessions in more than 4 years

• Gold prices drop as its safe haven

• Where will the markets go from here, 2nd April?

• The dollar is strengthening once again, which trajectory will the Rupee take here on?

• India’s closed airports are open again for business

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas