India’s economic outlook remains positive even as global uncertainties continue to pose potential challenges. According to the Finance Ministry’s May Economic Review, external headwinds—ranging from geopolitical tensions to global supply chain disruptions—could impact India’s growth trajectory and warrant close and continuous monitoring.
However, the domestic story remains strong. The report highlights easing inflationary pressures, a stable job market, and robust domestic demand as key drivers of economic resilience. High-frequency indicators point to sustained momentum in economic activity, reinforcing confidence in the growth trajectory for FY26.
Overall, while caution remains in light of global risks, India’s economic momentum continues to build, supported by sound macroeconomic fundamentals and policy stability.
Disinflationary Outlook
Improved agricultural production estimates, along with a forecast of an above-normal monsoon, has bolstered a disinflationary outlook, the Finance Ministry underlined. It pointed out that the Reserve Bank of India has has revised its retail inflation projection for FY26 downward to 3.7%.
“With no major imbalances in the macro aggregates, a subdued inflation rate combined with a growth-supportive monetary policy stance, India’s macroeconomic health is in a relative goldilocks situation,” it said.
Still, there may be some upside risk to inflation stemming from global commodity price volatility, particularly a surge in crude oil prices, trade-tariff issues, geopolitical conflicts and potential weather-related disruptions, the monthly review noted.
Global Uncertainty
The global economic outlook remains “clouded by uncertainty”, shaped by shifting policies, geopolitical conflicts and persistent vulnerabilities, and as a result, global growth in FY26 is expected to “stay subdued”, the Finance Ministry said.
In contrast, the Indian economy continues to demonstrate resilience in the face of these headwinds, supported by policy stability, easing inflation, a stable job market and a resilient external sector. Amidst these global uncertainties, the outlook for India is “one of cautious optimism”, it added.
The review document also pointed towards the World Bank’s recent downgrades in growth projections for various economies. The global body, in its latest forecast, slashed the growth estimates of the United States by 50 basis points, Japan by 30 bps and Euro Area by 90 bps.
However, for India, the GDP growth forecast was left unchanged at 6.3%. This is higher than the World Bank’s 4.5% growth forecast for China.
The Finance Ministry also referred to the brief Israel-Iran war, followed by the US intervention, which could have led to a sharp surge in crude oil prices. “For now, the risk has receded. But, it is too soon to sound the ‘all clear’ for the rest of the year,” it said.
Despite the global headwinds, India is on a “better footing” than many other nations, the ministry claimed, adding that the country seeks to build on it through critical agriculture, manufacturing, resources and technology missions and deregulation initiatives that unleash productivity.
“These may be nervous but exciting times for the Indian economy. Geopolitics may offer us opportunities that appeared remote previously,” it further said.
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