A government monthly economic review released on April 29, 2026, says India’s economy remains resilient on strong domestic demand but is facing a mounting “supply shock” as disruptions from the West Asia conflict push up energy costs and raise inflation risks. The finance ministry noted India is still building on a robust 7.6% real GDP growth in the previous fiscal year, but warned that external shocks could deepen price pressures and strain public finances if they persist.
The report highlights sustained pressure in global energy markets: India’s crude oil basket averaged about $113 per barrel in March and stayed close to $115 per barrel through April 24, raising import bills. “Inflation may become cost-push as businesses and producers pass on increased input costs to protect profit margins,” the review said, flagging a pathway for input-cost shocks to feed into consumer prices.
Wholesale inflation surged to 3.88% in March from 2.13% in February, signalling a sharp transmission of higher input costs across supply chains. Retail inflation rose to 3.4% in March from 3.2% a month earlier, while food inflation climbed to 3.87%, underlining emerging pressures in essential commodities. The report said headline consumer inflation remains relatively contained for now but cautioned that upstream volatility could lead to more persistent inflation.
The finance ministry linked the shock to the West Asia conflict, which has disrupted energy supplies, fertiliser shipments and global trade logistics. Exports weakened in March, falling 7.4% year‑on‑year, with 24 of 30 major export categories recording declines. Shipments to key Gulf markets, including the United Arab Emirates and Saudi Arabia, were hit as rising freight and insurance costs disrupted routes through the Strait of Hormuz. “The conflict has seriously dented investor confidence, disproportionately affecting EMDEs, including India,” the report said.
Currency weakness has compounded the problem: the rupee’s recent depreciation, the review noted, could amplify imported inflation and add fiscal pressures if higher energy and input bills persist. The government warned risks are “tilted toward persistence rather than quick reversal of price pressures,” especially if disruptions continue in crude, fertilisers and other industrial inputs.
The outlook for inflation will also depend on domestic agriculture. The report cautioned that a weak monsoon could worsen price pressures, saying that without a good kharif output “the price shock at headline inflation could spill over into core inflation through the cost‑push channel.” Policymakers will thus be watching weather and crop prospects closely.
Despite these external risks, the review said India’s financial system remains stable: capital adequacy, liquidity and asset quality across scheduled banks and non‑bank financial companies continue to be robust. The Reserve Bank of India is expected to maintain a proactive liquidity management stance to support economic activity.
On the labour front, indicators showed mild softening: unemployment rose to 5.1% in March from 4.9% in February, urban job sentiment deteriorated and rural sentiment eased, though one‑year‑ahead job expectations remain positive but softened, according to RBI consumer confidence surveys. The report’s overall message: strong domestic momentum is a buffer, but rising external volatility-especially in energy and trade corridors-poses a clear risk to inflation, investor confidence and fiscal health unless supply disruptions ease.
Original Source: https://www.firstpost.com/business/india-economy-supply-shock-west-asia-conflict-inflation-report-14005914.html
Category: India
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Publish Date: 2026-04-30 06:15:00
