High Crude Oil Prices Could Pressure India’s Fiscal Deficit, Current Account: Govt

New Delhi: The government on Wednesday said that sustained high crude oil prices could pressure India's fiscal deficit and current account balance again. The warning of the ministry comes after the outbreak of conflict in the Middle East that drove up oil prices, lifting India's import bill and pressuring inflation and external balances, according to the finance ministry’s July monthly economic review.

Despite the geopolitical uncertainty, the ministry also said that the Indian economy sustained growth momentum in the first quarter of the current financial year even as some high-frequency indicators witnessed some softening in momentum. “India will have to reinvent itself and re-imagine its response to the global imperatives for achieving strategic leverage,” the ministry said.

The July economic review also said that geopolitical tensions in the Gulf continued to pose risks through higher commodity prices, disruptions to trade flows and volatile capital movements. Apart from the spike of crude prices, the ministry review report also flagged a potential El Niño transition as a risk, warning that ‌adverse weather could hurt farm output, stoke food inflation and dampen rural demand.

“While food-grain stocks, reservoir levels and government contingency measures provide some protection, weather and energy-related developments would need close monitoring,” the report said.

The review further said that the massive initiatives of the government, spanning from semiconductors, critical minerals, shipbuilding, coal gasification and other strategic sectors, are expected to strengthen domestic manufacturing capabilities and improve supply-chain resilience, helping India's medium-term growth prospects.

“Besides, some high-frequency indicators, such as e-way bill and manufacturing PMI witnessed some softening in momentum. The service sector strengthened in Q1 of F27, driven by supportive domestic and external demand conditions. So, there is no doubt that the economy has continued to demonstrate resilience amid a challenging global backdrop,” the report said.

“As external conditions evolve, the continued interplay of domestic reforms, prudent macroeconomic management and swift policy responses, backed by consistent on-ground implementation, will remain important in shaping India’s economic trajectory,” it added.

On international agencies’ growth projections, the report also said that downside risks to the global growth forecast of the International Monetary Fund (IMF) July 2026 World Economic Outlook (WEO) continue to persist. “The IMF’s July 2026 outlook projected global growth to moderate from 3.2 per cent in 2025 to 3.0 per cent in 2026,” it said.

“While risks are more balanced than in the April 2026 WEO, they remain tilted to the downside, with renewed conflict in the Middle East, trade fragmentation, a correction in technology-driven expectations and limited policy buffers posing key risks to global growth,” it added.