'In an attempt to support farmers, policymakers set price floors for certain agricultural products, which has essentially blocked the disinflationary effect from easing demand. To maintain a steady level of income for farmers, policymakers will likely hike food prices.'

According to Chan, once households scale back consumption, service sectors will also begin to feel the squeeze due to deficient monsoon.

'Moreover, with much lower output this year and a strong government mandate to ensure adequate domestic supply, farm exports are likely to fall dramatically, extending the monsoon pain to other sectors such as trade and transport,' she added.

'This will contribute to stronger inflation both domestically and in the global marketplace, as India is one of the world's largest agricultural exporters, especially for rice.'

On the positive side, Moody's said that as the US and major European economies gradually come out of recession, export growth may return to double-digit territory as early as next year.

--Indo-Asian news Service

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