In its latest monthly economic review, the ministry said the economy has remained resilient despite a difficult global environment but cautioned that evolving geopolitical and economic risks require India to adapt quickly.
Also Read: Higher crude oil prices could hit India’s fiscal health, finance ministry says
“There is no doubt that the economy has continued to demonstrate resilience amid a challenging global backdrop. Nonetheless, global challenges show no sign of letting up, with uncertainties mounting. So, India has to reinvent itself and reimagine its responses to global imperatives if it has to achieve strategic leverage. As external conditions evolve, the continued interplay of domestic reforms, prudent macroeconomic management and swift policy responses, backed by consistent on-ground implementation will remain important in shaping India’s economic trajectory,” the report said.
The review identified rising global crude oil prices as a potential source of pressure on both the fiscal deficit and the current account balance if they remain elevated. At the same time, it said the country’s economic outlook continues to be supported by resilient domestic fundamentals, sustained policy support and strengthening structural drivers of growth.
It also warned that inflation, fiscal and current account deficits face upside risks, while growth faces downside risks amid the prolonged conflict in West Asia.
Highlighting broader strategic challenges, the ministry said developments surrounding artificial intelligence and the weaponisation of global supply chains underscored the need for India to strengthen its long-term resilience.Also Read: India growth resilient amid global uncertainty, but crude risks linger
“Global developments related to AI and weaponisation of supply chains in general are reminders of the distance India needs to travel to achieve long-term resilience and strategic leverage. Swifter policy responses and their implementation are vital to encourage foreign and domestic investment in the Indian economy,” the report said.
On the external sector, the ministry said India’s position remained resilient, supported by robust exports, a healthy services trade surplus and steady remittance inflows, adding that recent policy measures are expected to boost capital inflows in the near term.
“Together with adequate foreign exchange reserves, these factors are expected to reinforce the external sector’s resilience.”
The report also flagged the possibility of an El Niño transition as a key domestic risk, warning that adverse weather conditions could affect agricultural output, fuel food inflation and weaken rural demand.
