Economy holds firm, but risks remain from monsoon and geopolitics, says govt's economic review

New Delhi: India's economy remained resilient in the initial months of FY27, although risks from uneven monsoon rainfall, emerging El Niño conditions and geopolitical uncertainties continue to cloud the outlook, according to the finance ministry's monthly economic review.

The review for June 2026, prepared by the department of economic affairs (DEA), said high-frequency indicators such as e-way bill generation, PMI readings, electricity consumption and automobile sales continued to signal strength in domestic demand following the robust growth performance in 2025-26.

"Overall, the economy continues to exhibit resilience. However, moderation in select high-frequency indicators suggests some easing in momentum," the report said.

It added that uneven distribution of monsoon rainfall, emerging El Niño conditions and geopolitical uncertainties will continue to shape the outlook. Although global energy prices have eased, continued disruptions to oil production and shipping through the Strait of Hormuz could affect energy supplies and commodity prices.

However, moderation in core industries, fuel consumption, air passenger traffic, consumer confidence and labour market indicators suggested "some easing in momentum."

On inflation, the review said the reading may remain contained in the coming months amid easing global commodity prices, lower crude oil prices and softer input costs, including urea, reduce imported inflation. While global supply chains and trade flows may take longer to normalise, falling commodity prices, adequate buffer stocks of key farm commodities and continued supply-side interventions should help cushion inflationary pressures.

The review also pointed to sustained industrial momentum, supported by policy reforms and investment. Revised IIP and WPI frameworks are expected to improve measurement of industrial and price trends, while growth in capital goods and infrastructure-related sectors signals sustained investment. Investments in advanced manufacturing and digital infrastructure, along with efforts to strengthen critical mineral supply chains and trade connectivity, are expected to further bolster manufacturing competitiveness.

"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. 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," the review said.

It said, "water conservation, including recycling, utilisation of budgetary allocations for Jal Jeevan Mission, may now be at the top of the policy priority list." The report also called for reorienting agricultural pricing policies to encourage climate-resilient crops while discouraging water-intensive cultivation.

The conflict and deficient monsoon rainfall so far “underscore the need to reorient India's agricultural pricing policies to incentivise the cultivation of climate-resilient crops and disincentivise water-intensive ones.”

On the external front, the report said strong exports, resilient foreign direct investment inflows and comfortable foreign exchange reserves continue to lend support. It added that softening crude prices due to easing West Asia tensions and progress in US-Iran negotiations have eased external and inflationary pressures. Progress on trade agreements is expected to support exports and attract additional foreign capital.

The review said the prolonged geopolitical conflict tested India's resilience, but policymakers responded with a mix of immediate and structural measures to strengthen the country's ability to withstand future energy shocks. As a result, macroeconomic stability was preserved, concerns over external stability are expected to ease gradually, foreign debt investors have returned to the sovereign bond market, and equity inflows could recover as worries over a potential global AI-driven market bubble grow.