New Delhi, May 30 (IANS). The Finance Ministry in its ‘Monthly Economic Review’ released on Saturday said that India’s macroeconomic situation in May remains cautious but strong. Strong services exports, ample foreign exchange reserves and a stable labor market have supported the economy.
However, the report said that high global energy prices, weak rupee, rising production cost pressures and the possibility of a below-normal monsoon are factors that will require policymakers to remain vigilant.
“Flexibility and proactivity in monetary, fiscal and structural policies will be required to maintain growth momentum and keep inflation under control in FY 2026-27, as the global environment still remains uncertain,” the Economic Survey said.
According to the report, the ongoing conflict in West Asia has emerged as a major blow to the already weak global economic recovery. Its impact is clearly visible on the energy market, supply chain, trade routes and global financial conditions.
Inflation pressures have risen again due to rising energy, transport and logistics costs, and concerns of ‘stagflation’ (low growth and high inflation) have re-emerged in many major economies.
The review said that if there is a prolonged disruption in energy supplies from the Gulf region, it could further weaken global economic growth and increase the economic challenges of many countries.
For India too, the impact of these external pressures is now gradually becoming visible in the domestic economy.
“The Indian economy maintained its growth momentum in April 2026. E-way bill generation, PMI index and electricity consumption remained in the growth zone. However, the moderation in indices of eight core industries and fuel consumption indicate that global challenges are beginning to impact some sectors of the domestic economy,” the report said.
Referring to the inflation data for April 2026, the review said that the difference between consumer inflation and wholesale inflation appears to be increasing.
Retail inflation (CPI) rose marginally to 3.48 percent and remained below the Reserve Bank of India (RBI) target. However, there has been increased price pressure on some food items and services such as restaurants and accommodation.
On the other hand, wholesale inflation (WPI) rose sharply to 8.3 percent, mainly due to the rise in global energy prices, rupee weakness and low base effect.
According to the report, rising wholesale prices and the recent rise in fuel prices may also impact retail inflation through transport, energy and food items in the coming months.
Amid these short-term risks, the Indian Meteorological Department (IMD) has projected the monsoon this year to be around 92 percent of the long-term average (LPA).
The review said that the country has a buffer stock of 817.53 lakh tonnes of rice and wheat and there is adequate water storage in the reservoirs, which will support food security.
However, if there is a significant rainfall deficit and current geopolitical conditions persist, food inflation could rise, weakening rural demand and impacting overall economic growth.
Some moderation in industrial activity was observed in April 2026, due to global uncertainty and weakness in the hydrocarbon sector.
Yet cement, steel and power production remained strong, reflecting strong domestic demand linked to infrastructure and construction activities.
HSBC India Manufacturing PMI also remained in the expansion zone, although rising production costs put pressure on business conditions.
The report said growth in export orders, growth in employment opportunities and continued investment in sectors such as automobile, semiconductor, electronics and defense manufacturing indicate that industrial activity remains fundamentally strong.
Talking about the financial sector, there was instability in capital flows due to withdrawal of Foreign Portfolio Investment (FPI) and pressure was seen on the rupee.
Despite this, foreign direct investment (FDI) inflows remained strong and reached a record $94.5 billion in FY 2025-26, reflecting long-term investor confidence in the Indian economy.
At the same time, foreign exchange reserves also remain at a comfortable level, which is acting as a strong safety net to deal with global instability.
Labor market indicators are also positive, the report said. Employment and labor participation rates remain stable, while the manufacturing and services sectors are seeing continued strength in hiring activity.
–IANS
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