The Ministry of Finance on Tuesday said uncertainties surrounding the southwest monsoon, emerging El Niño conditions and geopolitical tensions in West Asia are key risks to growth and inflation in the months ahead.
The ministry cautioned that while the economy continues to display resilience, these factors remain the biggest risks.
In its Monthly Economic Review for June, released on Tuesday, the ministry said the economy remains on a stable footing despite early signs of moderation in industrial activity and rise in inflation, with easing crude oil prices and improving global supply chains helping soften some external pressures.
“While easing crude oil prices and improving global supply-chain conditions may help alleviate some external pressures, uncertainties surrounding the monsoon and geopolitical developments in West Asia continue to pose downside risks to the growth and upside risks to the inflation outlook," the report said.
According to the review, inflationary pressures have started building following the recent conflict in West Asia, with global energy prices going up globally and that gradually trickled into the domestic economy, even though the inflation remained within the tolerance band. “However, given the ongoing West Asia crisis and the subsequent global price shock, domestic inflationary pressures appear to be on an upward trajectory, particularly as fuel and energy price shocks diffuse domestically,” stated the review.
The ministry, however, said the recent de-escalation of tensions in the region, coupled with lower crude oil and fertiliser prices, has eased pressure on government finances and thus, the government will be able to meet its commitment to the fiscal consolidation roadmap for 2026-27.
With adequate policy measures taken to shield consumers and businesses from higher energy and commodity prices during the conflict, there have been minimal fiscal implications, highlighted the report. The government is optimistic that the recent de-escalation of tensions in the region, along with moderation in crude oil and fertiliser prices, will further ease the pressures, allowing fiscal consolidation to proceed.
Meanwhile, the ministry also confirmed on Tuesday that up to May, the government collected `7.19 lakh crore, or 19.7% of the Budget Estimate for total receipts in 2026-27. Out of the total collection, `3,48,138 crore has been collected as tax revenue (net to Centre), and `3,50,867 crore as non-tax revenue, `19,664 crore as non-debt capital receipts and total expenditure stood at ₹8.81 lakh crore, including `2.51 lakh crore in capital spending. Tax devolution to states reached `1.76 lakh crore, nearly `12,086 crore higher than the corresponding period last year.