New Delhi: India’s economic activity is expected to remain supported by resilient domestic demand, though renewed geopolitical tensions and commodity price volatility remain key risks to the outlook, the finance ministry said in its July Monthly Economic Review.
The ministry said the economy sustained its growth momentum during the first quarter of FY27 despite heightened global uncertainty. It said domestic reforms, prudent macroeconomic management, swift policy responses and consistent on-ground implementation will remain critical as external conditions evolve.
The global macroeconomic environment remains characterized by elevated uncertainty following the re-emergence of geopolitical tensions in West Asia, which have renewed upward pressure on global energy prices and increased uncertainty around the global growth and inflation outlook, the review said.
Citing the International Monetary Fund’s July World Economic Outlook Update, it noted that global growth is projected to moderate from 3.2% in 2025 to 3.0% in 2026 before recovering to 3.4% in 2027.
Demand support
Against this backdrop, steady domestic demand continued to support India’s growth during the first quarter of FY27, although some high-frequency indicators, including e-way bill generation and manufacturing PMI, softened. Services sector activity, however, strengthened, supported by sustained domestic and external demand.
India’s economy grew a solid 7.8% in the January-March period of FY26 despite disruptions from the West Asia conflict, easing from an upwardly revised 8% in the previous quarter and taking full-year growth to 7.7%, according to government data.
Industrial activity also remained resilient. The revised Index of Core Industries recorded 5.0% year-on-year growth in June, led by iron ore, electricity, cement and steel, indicating sustained momentum in infrastructure and construction activity. The review also pointed to continued progress in strategic manufacturing through developments in semiconductors, electronics, critical minerals, shipbuilding and the commercial space sector.
On agriculture, the review said kharif sowing has moderated because of an initial monsoon deficit, while a projected transition to El Niño presents downside risks. However, it said agricultural security remains underpinned strong food grain buffer stocks from paddy and wheat procurement.
Under the weather
The weather-related risks are beginning to feed into inflation.
Rising food prices pushed India’s retail inflation above the Reserve Bank of India’s 4% target in June, adding to concerns over an erratic monsoon even as renewed tensions in West Asia threaten to lift crude oil prices and disrupt global supply chains. Consumer price inflation accelerated to 4.38% in June from 3.93% in May.
The ministry said proactive government measures, including strategic food stock management, lower commercial LPG and aviation turbine fuel prices, and the withdrawal of temporary retail fuel sales restrictions, have been deployed to mitigate supply-side and inflationary risks.
On the external front, India’s trade performance remained resilient, the review said, with total exports rising 9.5% year-on-year in June. Merchandise exports were the principal driver of growth, while the sustained surplus in services trade and strong remittance inflows supported a current account surplus during April-May. Comfortable foreign exchange reserves, it added, continue to provide a strong buffer against external shocks.