India’s economy remains resilient, but FinMin flags easing momentum and climate risks

India's economy continues to exhibit resilience, although moderation in some high-frequency indicators suggests a slight easing in momentum, the Finance Ministry said in its monthly economic review for June.

The ministry said the uneven distribution of monsoon rainfall, emerging El Niño conditions and geopolitical uncertainties will continue to shape the near-term outlook.

"Although recent developments in West Asia have eased pressure on global energy markets, continued disruptions to oil production and shipping through the Strait of Hormuz could affect energy supplies and commodity prices," the report said.

According to the ministry, the cessation of the conflict in West Asia has brightened the outlook for growth and also reduced inflation and external deficit risks.

"The longer-than-expected duration of the conflict in West Asia tested India's resilience. Indian policymakers responded with a combination of near-term and structural measures designed to enhance the country's resilience to future energy shocks and their economic impacts," the report said.

The ministry also said concerns over external stability are expected to ease gradually.

"Foreign debt investors have returned to the Indian sovereign debt market. It is a matter of time before equity flows turn positive as concerns over the global AI bubble mount," the report said.

The West Asia conflict was a reminder of the need for a national policy on buffer stocks for a range of critical raw materials and inputs, said the report.

"Now, attention turns to the impact of a deficient monsoon. While the monsoon rains are expected to improve in July and August, experts point to the increasing unpredictability of rainfall patterns. Among other things, water conservation, including recycling, utilisation of budgetary allocations for Jal Jeevan Mission, may now be at the top of the policy priority list," the MER said.

The West Asia conflict and the deficient monsoon rainfall (so far) also underscore the need to reorient India’s agricultural pricing policies to "incentivise the cultivation of climate-resilient crops and disincentivise water-intensive ones", it added. "The steady stream of destabilising events and developments globally and climatically is a reminder of the challenges likely to arise in the coming years and the need for policy to stay a step ahead of them."

As the global environment continues to evolve, inflation readings may remain relatively contained in the coming months, the MER said.

According to the RBI, consumer price index (CPI) inflation in 2026-27 is likely to average 5.1 percent; and GDP is likely to grow by 6.6 percent.

"Recent easing in global commodity markets, a correction in crude oil prices, and softening of key input prices such as urea may help moderate imported inflationary pressures. Although the normalisation of global supply chains and trade flows to pre-conflict levels may take time, the decline in international commodity prices is expected to provide some cushion against further price pressures," said the report.

"Government interventions, adequate buffer stocks of key agricultural commodities, and continued supply-side management measures also help mitigate potential supply disruptions," it added.

On growth, the MER said that "overall, developments during the month point to continued strength in industrial activity, supported by policy reforms and investment momentum."

"Growth in capital goods and infrastructure-related sectors indicates sustained investment activity. Emerging investments in advanced manufacturing and digital infrastructure are also expected to support industrial growth. In addition, initiatives to strengthen critical mineral supply chains and trade connectivity could enhance the competitiveness of India's manufacturing sector," it said.