New Delhi: India’s economic activity, inflation, and external sector have remained relatively stable despite global risks and going ahead, easing cost pressures and firm domestic demand conditions are expected to support growth, according to the Finance Ministry’s monthly economic review, released on Monday.
However, the review flags the external environment as a key source of uncertainty due to volatility in oil prices and the slowing global economy.
Overall, India’s industrial sector has demonstrated resilience amid a challenging external environment, with manufacturing activity continuing to expand alongside gradual strengthening of domestic technological capabilities, the report stated.
Looking ahead, sustained efforts to strengthen R&D, skills, supply chain resilience and enabling infrastructure will be important for supporting industrial competitiveness and strengthening the capacity to respond to global disruptions, it said.
The outlook for domestic food inflation and agricultural output remains cautious as the adverse impact of the El Nino weather pattern could pose downside risks to crop yields during the late-August flowering and grain-formation stages, while also affecting soil moisture and the winter temperatures required for the upcoming rabi crops, particularly wheat and mustard.
“Kharif sowing has gained momentum following the intensification of monsoon rains across large parts of the country, although acreage remains below last year’s level,” the report pointed out.
Elevated food inflation, by absorbing a larger share of household disposable income, could constrain spending on non-food discretionary items, thereby limiting the extent to which cost-side pressures are passed through to final consumer prices, it added.
The export diversification drive is expected to cushion the country against uncertainty in global markets arising from the West Asia conflict and US tariff turmoil.
“India’s continued engagement through BRICS, including initiatives to expand intra-BRICS trade, strengthen MSME participation in international markets and build resilient global value chains, is expected to support export diversification and market access,” the report stated.
While the country’s current account deficit widened marginally in Q1 FY27, the subsequent recovery in capital flows, a resilient services surplus, and comfortable foreign exchange reserves provide a buffer against external developments, the report observed.
The Finance Ministry is closely tracking key developments in sovereign bond markets worldwide. The rise in yield can cut both ways. India’s bond yields can rise in tandem. Or, if they don’t, the spread compression can put pressure on the rupee.
(IANS)
