As the resolution process of the West Asia crisis drags on, an increasing number of economic metrics are exposing key weaknesses in the Indian economy. Many of these existed before the crisis broke out in late February and are now becoming apparent as the economy faces stress. The latest data on the Index of Eight Core Industries show that these sectors cumulatively grew just 0.5% in May 2026, the second-lowest in 21 months. It would have been easy to pass this off as a war-related impact, but the data also show that the index grew by an almost equally anaemic 1.1% over the course of the entire financial year 2025-26. What remains a concern is that the domestic crude oil and natural gas sectors continued their multi-year streaks of contractions in May as well. By this time, the third month of the conflict, oil prices had settled somewhat lower than their April peaks. As a result, oil imports by oil marketing companies began rising once again to meet domestic demand. A strategic goal continues to be missed here. While imported oil can be used to meet demand, domestic production should nevertheless be ramped up to fill strategic reserves. This reserve oil, even of inferior quality, can be released in times of shortage. The same holds true for natural gas. With natural gas imports and domestic production contracting, it followed that the fertilizer sector would also contract. The good news, however, is that the contraction — of 0.9% in May 2026 — was much lower than it was even two months earlier. In any case, what impact the ‘super El Niño’ will have on fertilizer demand is still uncertain.
Coal production, too, contracted by the most in nearly a year. As the summer continues to heat up, electricity generation will increasingly have to rely on variable renewable sources or costly imported coal. Notably, the core sectors are not the only ones revealing economic distress. The latest Goods and Services Tax (GST) revenue data too show that domestic economic activity seems to be slowing. Revenues from domestic transactions contracted 2.6% in May 2026. The government argues that this is because of a one-time windfall transfer it received in May last year. Even so, the average growth of domestic GST revenue over the last six months was just 3.1%, lower than in 2025-26 and the year before that. This is not a supply issue, since merchandise exports hit a record high in May 2026. It is a demand problem, as low real wage growth meets rising inflation to squeeze wallets. These are all distressing signals even as India enters a deficient monsoon. Trade deals are no substitute for hard-hitting reforms.
Published – June 24, 2026 12:20 am IST
