New Delhi: India’s economy has continued its resilient growth trajectory despite escalating global uncertainties, including the ongoing West Asia conflict. However, rising oil prices, inflationary pressures, and concerns over a potentially weak monsoon pose significant risks, according to the latest Monthly Economic Review by the Finance Ministry.
The review highlighted robust economic activity in April, driven by gains in manufacturing, services, exports, and investment. High-frequency indicators such as E-Way bill generation and electricity consumption have also expanded, reflecting steady domestic demand despite external disruptions.
Rising Oil Prices and Inflation Under Watch
The Finance Ministry expressed concern over disruptions in oil and energy supplies amid the geopolitical crisis. Brent crude averaged above $120 per barrel in April before easing slightly in May, adding pressure to India’s import bill.
Retail inflation remained within the Reserve Bank of India’s target at 3.48% in April, but wholesale inflation surged to 8.3%. “Rising wholesale inflation signals building cost pressures that could eventually feed into retail prices,” the ministry noted. Increases in fuel prices may further drive inflation through higher transportation and logistics costs.
Monsoon Concerns Could Affect Rural Demand
The prospect of a deficient monsoon has raised alarms among economists and policymakers. The India Meteorological Department has forecast below-average rainfall for the season, with a possible El Niño event. Weak rains could reduce agricultural output, push up food prices, and dampen rural consumption. Analysts warn that India may face its weakest monsoon in over a decade.
External Sector Remains Strong Amid Volatility
Despite global uncertainty, India’s external sector continues to perform well. Exports rose 13.6% year-on-year in April to $80.8 billion, while gross foreign direct investment hit a record $94.5 billion in FY26.
However, foreign portfolio investors have withdrawn over $23 billion since the West Asia crisis began, contributing to a depreciation of the rupee. Stable foreign exchange reserves, a resilient labor market, and strong services exports serve as buffers, but the Finance Ministry emphasized the need for vigilance in the coming months.
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