Navigating 2026-27 will require agility across monetary, fiscal and structural dimensions to preserve growth momentum and keep inflation under control amid an increasingly uncertain global environment, the finance ministry said in its May monthly economic report.
The report said India’s macroeconomic position reflects cautious resilience, supported by strong services exports, adequate foreign exchange reserves and a stable labour market. However, it warned that elevated global energy prices, a depreciating rupee, rising input costs and the prospect of a below-normal monsoon warrant continued policy vigilance.
The recent hike in petrol and diesel prices may activate both direct and indirect transmission channels, and any further escalation in energy prices could narrow the existing cushion more quickly than anticipated. A deficient monsoon could add food price pressures on top of energy-driven ones.
“However, second-round effects and their persistence must be evident in the data for policy responses to be triggered,” it said.
The review noted that the Indian economy maintained growth momentum in April, with E-way bill generation, Purchasing Managers’ Index (PMI) readings and electricity consumption remaining in expansionary territory. However, moderation in the Eight Core Industries Index and fuel consumption indicated that global headwinds were beginning to affect certain segments of domestic activity.
On inflation, the ministry highlighted a widening gap between consumer and wholesale prices. Retail inflation edged up marginally to 3.48% in April and remained below the Reserve Bank of India’s target, though pressures emerged in select food items and services, including restaurants and accommodation.
In contrast, wholesale inflation accelerated sharply to 8.3%, driven by elevated global energy prices, rupee depreciation and a favourable base effect. “The sharp rise in upstream price pressures, along with recent increases in fuel prices, suggests a gradual pass-through to retail inflation through higher transport, energy, and food-related costs in the coming months,” the report said.
Adding to inflation concerns, the India Meteorological Department has projected monsoon rainfall at around 92% of the long-period average. While buffer stocks of rice and wheat stood at 817.53 lakh tonnes and reservoir levels remain adequate, the report warned that “any significant rainfall deficit coupled with current geopolitical conditions could translate into food inflation, weakening rural demand and aggregate growth.”The review identified disruption in the Strait of Hormuz as the single most consequential variable for India’s external sector and inflation outlook.
TOPICSNirmala SitharamanThis article was first uploaded on May thirty, twenty twenty-six, at fourteen minutes past five in the evening. © The Indian Express (P) Ltd