Daijiworld Media Network - New Delhi
New Delhi, Aug 31: India’s economic activity, inflation and external sector have remained relatively stable despite global risks, while easing cost pressures and firm domestic demand are expected to support growth going ahead, according to the Finance Ministry’s monthly economic review released on Monday.
However, the review flagged the external environment as a key source of uncertainty, citing volatility in oil prices and a slowing global economy.
India’s industrial sector has demonstrated resilience despite the challenging external environment, with manufacturing activity continuing to expand alongside a gradual strengthening of domestic technological capabilities, the report said.
Looking ahead, sustained efforts to strengthen research and development, skills, supply chain resilience and enabling infrastructure will be important for improving industrial competitiveness and enhancing the capacity to respond to global disruptions, it added.
The outlook for domestic food inflation and agricultural output remains cautious as the adverse impact of the El Nino weather pattern could pose downside risks to crop yields during the late-August flowering and grain-formation stages. It could also affect soil moisture and winter temperatures required for upcoming rabi crops, particularly wheat and mustard.
“Kharif sowing has gained momentum following the intensification of monsoon rains across large parts of the country, although acreage remains below last year’s level,” the report said.
Elevated food inflation, by absorbing a larger share of household disposable income, could constrain spending on non-food discretionary items, thereby limiting the extent to which cost-side pressures are passed through to final consumer prices, it added.
The report said India’s export diversification drive is expected to cushion the country against uncertainty in global markets arising from the West Asia conflict and US tariff-related disruptions.
“India’s continued engagement through BRICS, including initiatives to expand intra-BRICS trade, strengthen MSME participation in international markets and build resilient global value chains, is expected to support export diversification and market access,” it stated.
Although India’s current account deficit widened marginally in the first quarter of FY27, a subsequent recovery in capital flows, a resilient services surplus and comfortable foreign exchange reserves provide a buffer against external developments, the report observed.
The Finance Ministry is also closely monitoring developments in sovereign bond markets worldwide. The review noted that rising bond yields could have a two-sided impact on India, with domestic yields potentially rising in tandem. If Indian yields do not rise correspondingly, narrowing spreads could instead put pressure on the rupee.