According to the Department of Economic Affairs' (DEA) Monthly Economic Review for May, which was released on Saturday, rising crude oil prices, inflationary pressures, and the possibility of a weak monsoon could hinder growth in the upcoming months. However, India's economy continues to demonstrate resilience despite growing global uncertainty brought on by the conflict in West Asia.
According to the finance ministry's economic assessment, even though the external situation has become more difficult, domestic fundamentals are still favourable. The labour market remained steady, manufacturing and services activity continued to grow, and foreign exchange reserves continued to function as a cushion against shocks to the world economy.

The Department of Economic Affairs stated in the study that "the near-term outlook for the Indian economy is one of cautious resilience." "The labour market is stable, foreign exchange reserves offer significant protection against external shocks, manufacturing and services PMIs are in expansionary territory, and domestic fundamentals remain largely intact."
However, the research stated that since the crisis in West Asia has escalated, the global background has grown "materially more challenging." It cautioned that India "cannot fully insulate itself from" the challenges posed by rising crude oil costs and slower growth in other major economies.

The evaluation is made at a time when economists and policymakers are keeping a careful eye on how geopolitical tensions affect oil prices. Additionally, the Reserve Bank of India has identified the conflict as a negative growth risk, cautioning that rising energy costs may have an impact on inflation and the external sector.
Even though retail inflation is still below the RBI's target range, the DEA stated that inflation developments need to be closely watched. According to the research, "the current divergence between retail inflation and wholesale prices signals that upstream cost pressures are building, and the passthrough to consumers, while limited so far, may not be far behind."

Due to rising global energy prices, currency devaluation, and a favourable base impact, wholesale inflation increased to 8.3% in April 2026 while retail inflation increased little to 3.48%. According to the report, the recent increase in petrol and diesel prices “may activate both direct and indirect transmission channels,” adding to inflationary pressures.
The ministry also voiced concern about risks associated with the weather. While a different forecast has warned of below-normal rainfall amid increasing El Niño conditions, the India Meteorological Department has projected monsoon rainfall at about 92% of the long-period average.

The DEA stated that "any significant rainfall deficit combined with current geopolitical conditions could translate into food inflation, weakening rural demand and aggregate growth."
In April, there were conflicting patterns in industrial activity, according to the survey. It said that sectors connected to infrastructure kept up the momentum of expansion.
According to the government, "resilience in cement, steel, and electricity generation continued to support overall momentum, reflecting sustained domestic demand from infrastructure and construction activity."

Despite increased input costs, the HSBC India Manufacturing PMI continued to be in expansion territory. Continued economic strength was also demonstrated by export orders, the creation of jobs, and new investment pledges in the automotive, semiconductor, electronics, and defence industries.
The report said that gross foreign direct investment inflows reached a record $94.5 billion in FY26, indicating robust confidence among international investors. According to the report, "indicating continued long-term investor interest." Net FDI inflows increased during the fiscal year, according to RBI figures published earlier this month.
The DEA stated that because of India's reliance on imported crude oil, events surrounding the Strait of Hormuz continue to be crucial to the country's future.

According to the research, "the duration of the Strait of Hormuz disruption remains the single most consequential variable for India's external and price outlook."
The analysis came to the conclusion that in FY27, policymakers would need to carefully balance worries about inflation and growth.
"Even as the global environment remains uncertain, navigating FY27 will require agility across monetary, fiscal, and structural dimensions to safeguard growth momentum and keep inflation durably anchored," the report stated.