New Delhi: India’s macroeconomic position in the month of May reflects cautious resilience over strong services exports, adequate foreign exchange reserves and a stable labour market, Finance Ministry said in its ‘Monthly Economic Review’ on Saturday.
However, 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, the Economic Review said.
“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.
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.
Prolonged disruptions to Gulf energy supplies could further weaken global growth and intensify macroeconomic vulnerabilities across economies, according to the monthly review.
For India, these external pressures are beginning to transmit, selectively but perceptibly, into domestic economic conditions.
“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 noted.
The inflation dynamics of April 2026 reflect a growing divergence between relatively contained consumer prices and sharply rising wholesale prices.
While retail inflation increased only marginally to 3.48 per cent and remained below the RBI’s target, pressures intensified in select food items and services such as restaurants and accommodation.
In contrast, wholesale inflation accelerated sharply to 8.3 per cent, driven primarily by elevated global energy prices, currency depreciation, and low base effect.
The sharp rise in upstream price pressures, along with recent increases in fuel prices, suggests a gradual pass-through to retail inflation through higher transport, energy, and food-related costs in the coming months.
Adding to these near-term risks, the IMD has projected overall monsoon rainfall at around 92 per cent of the long-period average.
“Buffer stocks of rice and wheat at 817.53 lakh tonnes and adequate reservoir storage provide suitable cushion to foodgrains. However, any significant rainfall deficit coupled with current geopolitical conditions could translate into food inflation, weakening rural demand and aggregate growth,” the Review document suggested.
Industrial activity moderated in April 2026 amid persistent global uncertainty and weakness in the hydrocarbon sector.
However, resilience in cement, steel, and electricity generation continued to support overall momentum, reflecting sustained domestic demand from infrastructure and construction activity. The HSBC India Manufacturing PMI remained in expansionary territory even as rising input costs weighed on operating conditions.
At the same time, stronger export orders, rising employment, and continued investment commitments in sectors such as automobiles, semiconductors, electronics, and defence manufacturing pointed to underlying resilience in industrial activity, said the document.
On the financial side, capital flows remained volatile, with FPI outflows exerting pressure on the Indian rupee.
Nevertheless, gross FDI inflows remained resilient, reaching a historical peak of $94.5 billion in FY26, indicating continued long-term investor interest in the Indian economy. Foreign exchange reserves, too, remained at comfortable levels, providing an important buffer against global volatility, said the Review.
Labour market indicators, meanwhile, reflect a stable employment landscape, with steady participation and employment levels, and sustained hiring momentum across manufacturing and services, it added.
(IANS)
