"If the rains are normal, growth should climb to 5.4 percent from 4.7 percent last year. We estimate that poor rains will hurt growth by 50-75 bps," US financial major said in a research report.
"With a normal monsoon, CPI inflation will likely soften to 7 percent by March 2015, opening the possibility for RBI to cut rates by December. But an El Nino incident can push this to 8-10 percent, delaying the rate cuts to 2015."
The Met Department said the monsoon is expected to be below normal in 2014 because of the El Nino effect, arising from the warmer-than-average sea surface temperature in the central and eastern tropical Pacific Ocean.
The condition occurs every 4-12 years and had last impacted India's monsoon in 2009.
However, Deutsche Bank does not see much impact of a deficient monsoon, saying the agriculture sector matters less for overall growth, given that its relative share in the economy has reduced appreciably. Currently, the share of agriculture in India's GDP is 14 percent, though the sector is still the largest employer.
Deutsche Bank noted that poor monsoons and associated production shortfall can be countered by policy action.
Advising investors to watch the July rains, the report said the July-August rains are critical to kharif crops and added an industrial recovery would be pushed back further if the RBI delays rate cuts due to rising inflation. BofA-ML said it continues to be bearish on rural demand.
"We continue to be bearish on rural demand. We estimate that the coming summer rabi harvest will see farm income growth drop to 10.3 percent from 16.5 percent last year," it said.


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