NEW DELHI: India's economy remains resilient despite escalating global uncertainties triggered by the conflict in West Asia, but rising energy prices, a weakening rupee, mounting inflationary pressures and the prospect of a below-normal monsoon pose significant risks to growth and price stability, the Finance Ministry said in its Monthly Economic Review (MER) for May 2026.
The ministry said the near-term outlook for the economy is one of cautious resilience, with domestic fundamentals remaining broadly intact. Manufacturing and services activity continues to expand, the labour market remains stable and the country’s foreign exchange reserves provide a substantial buffer against external shocks.
However, it cautioned that the global environment has become materially more challenging since the outbreak of the West Asia conflict, with elevated crude oil prices, tighter financial conditions and slowing growth across major economies creating headwinds that India cannot fully escape.
“The near-term outlook for the Indian economy is one of cautious resilience,” the report said, while warning that forecasts of a below-normal monsoon and a likely moderation in economic activity could weigh on consumption demand in the months ahead.
The review noted that the conflict has disrupted energy markets, trade routes and supply chains, reviving inflationary pressures globally. Brent crude averaged $120.4 per barrel in April before easing to $108.3 in May, while supply-chain disruptions intensified.
The ministry flagged a growing divergence between retail and wholesale inflation. Consumer price inflation rose marginally to 3.48% in April, remaining below the Reserve Bank of India’s medium-term target of 4%. In contrast, wholesale price inflation accelerated to 8.3%, a 42-month high, driven by elevated energy prices, rupee depreciation and favourable base effects.
The inflation outlook, it said, warrants close monitoring.