New Delhi, July 4 -- The area under paddy cultivation could shrink in the ongoing kharif season, as below-normal monsoon rainfall and the return of El Niño weigh on sowing, according to four people familiar with the matter.

A smaller paddy harvest could reduce output of rice-the country's most widely consumed staple and a key component of the retail inflation basket-and put upward pressure on prices, especially if lower acreage is accompanied by weaker yields. However, ample government rice stocks are expected to cushion any immediate supply shock and keep food security concerns at bay.

The southwest monsoon-which showers rains on the country over June to September-is critical for cultivation of paddy, a water-intensive crop that r...