NEW DELHI: India's economy remained resilient in April 2026 despite mounting global headwinds from the ongoing West Asia conflict, but rising wholesale inflation, a weakening rupee, elevated energy prices and the prospect of a below-normal monsoon pose growing risks to growth and price stability, according to the Finance Ministry's Monthly Economic Review (MER) for May 2026.
The review said the conflict has emerged as a major shock to the fragile global recovery, disrupting energy markets, supply chains and trade routes while reviving inflationary pressures worldwide. Brent crude averaged $120.4 a barrel in April before easing to $108.3 in May, while global supply-chain pressures have intensified.
Against this backdrop, India's high-frequency indicators continued to signal expansion. E-way bill generation, manufacturing and services PMI readings and electricity consumption remained in growth territory, although the Eight Core Industries Index and fuel consumption showed signs of moderation, suggesting that global pressures are beginning to affect some segments of domestic activity.
The ministry noted a growing divergence between consumer and wholesale inflation. Retail inflation rose marginally to 3.48% in April, remaining below the Reserve Bank of India's 4 per cent target, while wholesale inflation surged to 8.3%, a 42-month high, driven by elevated global energy prices, rupee depreciation and a favourable base effect.
"The divergence between subdued retail inflation and rising wholesale inflation suggests that upstream cost pressures are building in the economy, although their pass-through to consumers has so far remained limited," the report said.
Food inflation risks remain elevated as the India Meteorological Department has projected monsoon rainfall at around 92 per cent of the long-period average, with the possibility of El Niño conditions developing during the season. While foodgrain buffer stocks and reservoir levels remain comfortable, the ministry warned that any significant rainfall deficit could quickly translate into higher food inflation, weaker rural demand and slower growth.
The review highlighted the resilience of India's external sector. Total exports rose 13.6% year-on-year to $80.8 billion in April, supported by strong services exports, which helped narrow the overall trade deficit by 30.1% to $7.8 billion.
India also recorded a historic peak in gross foreign direct investment inflows, which rose 17.3% to $94.5 billion in FY26, underscoring continued long-term investor confidence despite global uncertainty.
At the same time, foreign portfolio investors pulled out $23.6 billion from Indian markets after the escalation of the West Asia conflict, contributing to a nearly 4.9% depreciation of the rupee against the US dollar since late February. The currency stood at ₹95.7 per dollar as of May 26.
The ministry, however, said India remains well-positioned to weather external shocks, supported by foreign exchange reserves of $697 billion, equivalent to about 10.7 months of imports, a stable labour market and strong services exports.
"Overall, India's macroeconomic position in May 2026 reflects cautious resilience," the review said, while stressing that policymakers will need to remain vigilant as elevated energy prices, a depreciating rupee, rising cost pressures and monsoon uncertainties continue to threaten inflation and growth.
