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Informist, Wednesday, Apr. 29, 2026

 

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--Fin min: FY27 7.0-7.4% GDP growth view clouded by impact of West Asia war 
--Fin min: Supply shock is apparent in the economy 
--Fin min: Demand compression from supply shock a serious concern 
--Fin min: Inflation may become cost-push as input costs are passed on
--Fin min:Rupee weakness an inflation pressure point as import bill may rise 
--Fin min: Yet to see if headline CPI spillover to core CPI strong or weak 
--Fin min: West Asia crisis not expected to adversely affect fincl stability 
--Fin min: RBI's proactive liquidity approach to meet productive econ needs 
--Fin min: Recent FTAs to reinforce trade performance, expand mkt access 
--CONTEXT: Fin min releases Monthly Economic Review for April 
--Fin min: Current global drift may be source of opportunity for India 
--Fin min: India can convert diplomatic goodwill to durable econ gains 
--Fin min: India can capitalise on strong local fundamentals to move forward 
--Fin min: West Asia crisis weighed on industrial performance early FY27 
--Fin min:Mar demand-side data resilient; supply-side data shows initial hit 
--Fin min: Policy response has not lost sight of long-term priorities 
--Fin min: Policy response managed immediate disruptions of West Asia war 
--Fin min: Risks tilted to upside for inflation, fiscal and external deficits 
--Fin min: Risks tilted to downside for economic growth 
--Fin min: Policy expected to safeguard medium-term fisc, external stability

 

NEW DELHI – The supply constraints created by the conflict in West Asia between the US-Israel combine and Iran may spur inflation while disrupting trade and financial flows, the Union finance ministry said in its monthly economic review released Wednesday. According to the review, while India's domestic demand, policy buffers, resilient financial system, and sustained public investment provide the economy some insulation, it is not certain that these will prove to be "adequate" in the event of prolonged uncertainty in energy and fertiliser supplies.

 

The ministry also expressed "serious concern" over likely demand compression following high prices, rising inflation, and reduced pace of economic activity. "A wide spectrum of downstream industries relies directly on the petroleum sector and it is likely that input cost pressures will be felt widely across the economy," it said.

 

It further noted that a poor kharif output in case of a weather shock such as below normal monsoon and possible El Nino conditions may worsen cost-push inflation. "Inflation may become cost-push as businesses pass on their increased input costs to protect their profit margins," the ministry noted in the review.

 

It said the war has "seriously dented" investor confidence, disproportionately affecting developing economies, including India. "The consequent weakening of the rupee is another pressure point for domestic inflation, as that could raise import prices," it noted.

 

As per the review, the financial year 2025-26 (Apr-Mar) delivered real GDP growth of 7.6%, encouraging a 7-7.4% forecast for FY27 that has since been "clouded by an altered macro-outlook" in the wake of the West Asia war. It noted the International Monetary Fund's latest World Economic Outlook that says risks to growth forecasts are "heavily tilted to the downside, while inflation risks are tilted to the upside".

 

"Rising wholesale prices indicate emerging costpush pressures that could transmit to consumer inflation if supply disruptions persist," the ministry said, pointing out that monetary policy has therefore maintained a cautious stance, keeping the repo rate unchanged at 5.25%. "Liquidity in the system remains in surplus, and the bank credit growth remains steady and broad-based," it said.

 

It emphasised that the crisis in West Asia is not expected to adversely affect India's financial stability as key indicators for capital adequacy, liquidity, and asset quality in both scheduled commercial banks and non-banking finance companies remain strong.

 

It further said the demand-side indicators remain "reasonably resilient", even as it noted a little supply-side moderation in March as the initial impact of escalating tensions in West Asia. "India's policy response to date has demonstrated an ability to manage immediate disruptions without losing sight of long-term priorities," the ministry said.

 

It noted in the survey that a multipolar world creates space for India to convert diplomatic goodwill into durable economic gains. As a manufacturing destination, services hub, and large consumer, India can push for more ambitious trade agreements and diversified supply chains. "India can capitalise on its strong domestic fundamentals and active trade engagement to move forward at the speed the moment demands," it said.

 

The ministry said the free trade agreements recently concluded by New Delhi are expected to enhance trade by expanding market access and deepening the country's integration with global value chains.

 

The survey also considered slackening of India's industrial performance in early FY27 following the war in West Asia, with the fertiliser sector bearing the brunt of disruptions to gas and chemical supplies. "Risks are tilted to the upside for inflation, fiscal and external deficits and to the downside for economic growth," it said. "However, while striving to sustain economic growth, policy is expected to safeguard medium-term fiscal and external stability."  End

 

US$1 = INR 94.84

 

Reported by Asim Khan

Edited by Rajeev Pai

 

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