India's economy resilient, but global risks rising: Finance Ministry

Mint

4 hours ago

New Delhi: India's economy remains on firm footing, but persistent global headwinds, ranging from trade frictions and policy uncertainty to ongoing geopolitical tensions, could weigh on future growth, the Finance Ministry said in its latest Monthly Economic Review released on Friday.
"These external challenges could potentially impact India's growth trajectory and warrant close and continuous monitoring," added the May edition of the review.
Despite these risks, the ministry maintained a largely optimistic tone.
'Overall, the outlook for the Indian economy remains positive, demonstrating resilience amid a turbulent global environment, supported by robust domestic demand, easing inflationary pressures, a resilient external sector, and a steady employment situation,' it added.
Despite the external volatility, the ministry said that robust domestic demand, particularly a rebound in rural consumption, steady investment activity, and a positive shift in net exports, underpinned the economy's resilience.
On the supply side, it added that the services sector continued to be the main driver of growth, while industrial output expanded on the back of 'strong growth in construction and a stable performance in manufacturing.'
The report also noted a revival in agriculture, with the sector rebounding bolstered by favourable monsoon conditions and record food grain production.
To be sure, in May, tensions between India-Pakistan escalated along the Line of Control following an earlier terrorist attack in Jammu and Kashmir, injecting fresh uncertainty into the regional security environment.
India accused Pakistan of backing militants, while Islamabad alleged unprovoked firing by Indian forces.
The flare-up reignited diplomatic friction, though it stopped short of a wider conflict.
Meanwhile, global geopolitical risks remained elevated.
The war in Ukraine intensified, with renewed Russian offensives drawing international concern, while tensions in the Middle East simmered, particularly in Gaza and southern Lebanon, where cross-border exchanges between Israeli forces and Hezbollah added to fears of a broader conflict.
These developments continued to cloud the global economic outlook, adding pressure to supply chains and investor sentiment.
Looking ahead, the government maintains its growth outlook for 2025–26 at 6.3% to 6.8%, supported by rising private consumption, especially in rural areas, and continued expansion in services exports.
Independent forecasts by various agencies also fall within a similar range, projecting India's growth between 6.3% and 6.7% for the fiscal year.
While domestic indicators have remained largely positive, the finance ministry noted that financial markets experienced volatility due to external developments.
'The significant escalation of trade tensions in early 2025, followed by a partial de-escalation in the second quarter, contributed to considerable volatility in the financial markets,' the review said.
However, it said that the Indian government bond market exhibited stability and certainty in May, driven by factors such as the announcement of a record surplus dividend by the RBI and a robust growth reading of Q4 FY25.
As a result, the risk premium on India's government bonds declined to 182 basis points as of May 30 (2025), it added.