FinMin June Review: Indian Economy Resilient But Faces 'El Niño' And Geopolitical Headwinds

New Delhi: The Union finance ministry on Tuesday said that India’s economy continued to exhibit resilience in momentum in the early part of the fiscal year, but raised concern over uneven rainfall, El Niño conditions and geopolitical uncertainties, which would continue to shape the economic outlook in the country. Despite all odds, India’s inflation may remain relatively contained ‌ in the coming months as global commodity prices ease, according to the ministry’s monthly economic review report.

Highlighting India’s economic activity, the June review report also said that moderation in select high-frequency indicators suggested some easing in momentum, warning signs of moderation in industrial activity required close attention. “Easing global commodity prices, including crude oil and urea, may help reduce imported inflationary pressures. Besides, Middle-East conflict and below-normal monsoon rainfall underscore the need to rethink India's agricultural pricing policies,” the report said.

The ministry also said that inflation readings might remain “relatively contained” in the coming months. “A decline in international commodity prices is expected to provide some cushion against further price pressures, even as the review called for close monitoring of evolving inflation risks. The normalisation of global supply chains and trade flows to pre-conflict levels may take time,” it said.

The June review’s inflation assessment comes after the ministry warned in May that upstream price pressures were building because of energy prices, currency movements and wholesale inflation. In the May review, the ministry said retail inflation was still below the RBI’s 4 percent target in April, but higher transport, energy and food-related costs could pass through in the coming months if energy and weather shocks persisted.

In its May review, the ministry had also said the West Asia conflict was visible across energy markets, supply chains, trade routes and global financial conditions, and that some external pressures were beginning to transmit into domestic conditions. It had described India’s position then as one of “cautious resilience”, supported by services exports, foreign exchange reserves and a stable labour market.