With forecasts pointing to a below-normal monsoon and a likely moderation in economic activity, overall consumption demand may face headwinds in the coming months, and the near-term outlook for the Indian economy is one of cautious resilience, the Finance Ministry said in a report on Saturday (May 30, 2026).

However, domestic fundamentals remain broadly intact, manufacturing and services PMIs (Purchasing Managers’ Indexes) are in expansionary territory, the labour market is stable, and foreign exchange reserves provide meaningful insulation against external shocks, the Finance Ministry said in its latest Monthly Economic Review.

At the same time, it said, the global environment has become materially more challenging since the onset of the West Asia conflict, with elevated crude prices, tightening financial conditions, and weakening growth momentum across major economies posing headwinds that India cannot fully insulate itself from.

The West Asia conflict has emerged as a major shock to the already fragile global recovery, with its effects increasingly visible across energy markets, supply chains, trade routes and global financial conditions.

Elevated energy, transportation and logistics costs have revived inflationary pressures and renewed stagflation concerns across major economies, it said.

Confronted with these pressures, major Central banks are expected to maintain restrictive monetary policy stances for longer than previously anticipated, pushing sovereign bond yields in advanced economies to multi-year highs, it said.

Across emerging markets, the impact remains uneven; energy-importing economies face mounting pressures from currency depreciation, capital outflows, and higher import bills, while commodity exporters remain relatively better positioned, it said.

The report said the Indian economy maintained its growth momentum in April 2026, with E-way bill generation, PMI indices and electricity consumption remaining in expansionary territory.

However, the moderation in the Eight Core Industries Index and fuel consumption signals that global headwinds are gradually finding their way into select segments of domestic activity, it said. On the inflation outlook, the report said, it warrants vigilance.

The current divergence between retail inflation and wholesale prices signals that upstream cost pressures are building, and the passthrough to consumers, while limited so far, may not be far behind, it added.

The recent hike in petrol and diesel prices may activate direct and indirect transmission channels, and any further escalation in energy prices could narrow the existing cushion more quickly than anticipated.

A deficient monsoon could add food price pressures on top of energy-driven ones. However, second-round effects and their persistence must be evident in the data for policy responses to be triggered, it said.

Looking ahead, the report said, the duration of the Strait of Hormuz disruption remains the single most consequential variable for India’s external and price outlook. Should normalisation occur soon, it said, the conditions for a broader-based recovery, supported by strong services exports and sustained investment commitments, are in place.

“Policy will need to remain agile across monetary, fiscal, and structural dimensions to navigate this period of compounded uncertainty, external and climatic, while keeping medium-term growth objectives firmly in view,” it said.

Overall, India’s macroeconomic position in May 2026 reflects cautious resilience, it said, adding that strong services exports, adequate foreign exchange reserves and a stable labour market provide a firm foundation.

However, it said, the confluence of elevated global energy prices, a depreciating rupee, rising upstream cost pressures and the prospect of a below-normal monsoon calls for sustained policy vigilance.

Navigating FY27 will require agility across monetary, fiscal and structural dimensions to safeguard growth momentum and keep inflation durably anchored, even as the global environment remains uncertain, it added.

Published – May 30, 2026 05:37 pm IST

Strong growth accompanied by stable inflation and external account and progressive employment outlook will help the Indian economy close the current financial year on a positive note. Representational file image.
| Photo Credit: Reuters

The Finance Ministry on March 22 said with an uptick in private investment and inflation trending down, India’s outlook for the next fiscal looks positive.

The Monthly Economic Review also said that inclusion of Indian bonds in Bloomberg bond index from January 2025 should bolster inflows.

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It said robust investment activity is driving growth amid a steady rise in consumption.

“The continued focus on public investment seems to have crowded in private investment,” said the February edition of the review by Department of Economic Affairs.

The National Statistical Office (NSO) has revised upwards the GDP growth estimate for current fiscal to 7.6% from 7.3%.

India grew above 8% for three consecutive quarters, reaffirming its position as a standout performer amid sluggish global growth trends. Various agencies echo a similar sentiment revising the FY24 growth estimates of India closer to 8%, the Ministry said.

“On the whole, India looks positively towards the dawn of FY25,” the review said.

It said increased demand for residential properties in tier-2 and tier-3 cities augurs well for furthering construction activity.

Non-farm employment has revived, improving the capacity to absorb the labour leaving agriculture.

“The ascent of manufacturing sector employment is expected to be marked by upscaling of enterprises and sunrise sectors emerging as catalysts for generating quality employment,” it added.

It said strong growth accompanied by stable inflation and external account and progressive employment outlook will help the Indian economy close the current financial year on a positive note.

“There are headwinds like indications of hardening crude oil prices and global supply chain bottlenecks to trade. Nonetheless, India, on the whole, looks forward to a bright outlook for FY25,” the monthly review said.

It said India’s inflation outlook for the upcoming months is positive.

Core inflation is trending downwards, indicating a broad-based moderation in price pressures. The pick-up in summer sowing is likely to help reduce food prices, it added.