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Informist, Friday, Jun 27, 2025

 

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--Fin min: India's economic momentum continues to grow 
--CONTEXT: Comments from fin min's Monthly Economic Review report for May 
--Fin min: Positive growth trajectory appears to be continuing in FY26 
--Fin min: High-frequency data indicates econ activity resilient 
--Fin min: Indian econ outlook positive, supported by robust domestic demand 
--Fin min: Positive econ outlook supported by easing inflationary pressures 
--Fin min: External challenges can impact India growth trajectory 
--Fin min: External challenges warrant close and continuous monitoring

 

NEW DELHI - India's economy is in a "goldilocks situation" with subdued inflation and monetary policy in a growth-supportive stance, the finance ministry said Friday. India continues to demonstrate resilience in the face of a challenging global environment, the ministry said in its Monthly Economic Review for May.

 

Had higher crude oil prices--which rose amidst the Israel-Iran conflict--persisted, they could have threatened India's growth and fiscal outlook in the current financial year, the ministry said. "Thankfully, there is a ceasefire, and oil prices have retreated sharply. There is ample global supply of oil, but insurance costs and the perceived risk of potential closure of choke points might cause the landed price to rise. Therein lies the risk to India."

 

The ministry said that while the geopolitical risk has receded for now, it is too soon "to sound the all clear for the rest of the year". It added that India will have to "get used to doing the balancing act or the high-wire act for some time to come".

 

However, amidst the uncertainties, the Indian economy is on a better footing than the economies of many other countries, the finance ministry noted. India should build on this through critical agriculture, manufacturing, resources, and technology missions and initiatives for deregulation that unleash productivity, it said. 

 

Over the past couple of years, with geopolitical conflicts troubling the world economy, the government has focused on deregulation to increase economic momentum but with limited success so far. These "may be nervous but exciting times for the Indian economy", the ministry said, adding that geopolitics may offer opportunities that appeared remote previously. "It is up to us to be flexible enough to ride the tide," it said.

 

The finance ministry draws confidence in the face of headwinds from policy stability, easing inflation, a stable job market, and a resilient external sector. The outlook for India is one of "cautious optimism", it said.

 

The ministry's disinflationary outlook is anchored by improved agricultural production estimates and a forecast of an above-normal monsoon, boosting prospects for kharif sowing and improving reservoir levels. Having said that, there may be some upside risk to inflation from global commodity price volatility, particularly a surge in crude oil prices, trade-tariff issues, and disruptions relating to geopolitics or weather.

 

India's headline CPI inflation fell to an over-six-year low of 2.82% in May as food prices continued to decline even as core inflation rose. CPI inflation was 3.16% in April and 4.80% in May 2024. This was the seventh consecutive month when CPI inflation declined, and also the fourth consecutive month when it stayed below the Reserve Bank of India's medium-term target of 4%.

 

The ministry noted that India has prioritised bilateral trade agreements and economic partnerships to diversify exports, increase domestic manufacturing, and integrate with the global value chain. "Furthermore, the labour market in India has remained stable, with multiple surveys and reports indicating a positive employment outlook," the ministry said.

 

Besides employment, the ministry noted that other high-frequency indicators indicate economic activity has remained resilient. The positive trajectory appears to be continuing in FY26, with initial high-frequency indicators indicating that economic activity remains resilient. Rural demand has strengthened further, supported by a healthy rabi harvest and a positive monsoon outlook, while urban consumption is being supported by increased leisure and business travel, as seen in the rise of air passenger traffic and hotel occupancy, the ministry said. However, there are signs of softening in areas like construction inputs and vehicle sales, it added.

 

Overall, the finance ministry said the outlook for the economy remains positive, but global growth continues to face headwinds, with persistent trade frictions, heightened policy uncertainty, and continuing geopolitical conflicts weighing on the broader economic outlook. "These external challenges could potentially impact India's growth trajectory and warrant close and continuous monitoring," it said. 

 

India's GDP growth is estimated to have slowed to a four-year low of 6.5% in FY25. In the current financial year, it is seen in the range of 6.3%-6.8%.  End

 

Reported by Priyasmita Dutta and Shubham Rana

Edited by Rajeev Pai

 

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