The finance ministry warned that sustained high crude oil prices could place renewed pressure on India’s fiscal deficit and current account balance after conflict in the Middle East pushed up global oil prices. The July monthly economic review said higher crude costs had increased the import bill and were adding to inflationary pressures and strains on external balances.

Despite geopolitical uncertainty, the ministry said the Indian economy sustained growth momentum in the first quarter of the current financial year even as some high-frequency indicators softened. The review noted that indicators such as e-way bills and the manufacturing purchasing managers index (PMI) recorded moderation while the services sector strengthened in the first quarter of the current financial year, supported by domestic and external demand, underlining the economy’s resilience.

The report flagged that tensions in the Gulf could pose risks through higher commodity prices, disruptions to trade flows and volatile capital movements, and it identified a potential El Niño transition as a downside risk to agricultural output. It cautioned that adverse weather could reduce farm output, stoke food inflation and dampen rural demand, while adding that food-grain stocks, reservoir levels and government contingency measures offered some protection though weather and energy developments required close monitoring.

The review said large government initiatives across semiconductors, critical minerals, shipbuilding and coal gasification were expected to strengthen domestic manufacturing capabilities and improve supply-chain resilience, supporting medium-term prospects. It added that the interaction of ongoing reforms, prudent macroeconomic management and timely policy responses, backed by consistent implementation, would be important in shaping India’s economic trajectory. The report also noted that the International Monetary Fund (IMF) projected global growth to moderate from 3.2 per cent in 2025 to 3.0 per cent in 2026 and warned that downside risks to that outlook persisted.