Amid the ongoing US-Iran conflict, the Finance Ministry in its monthly economic review has called for reinventing approach to dealing with the evolving global challenges. India will need to rethink its approach and redesign its policy responses to an increasingly complex global environment, particularly the challenge of elevated energy prices, if it is to strengthen its strategic position, the Finance Ministry said in its monthly report released on Wednesday. The report stressed that deeper domestic reforms and quicker policy execution will be essential to alter the country’s long-term economic trajectory.Highlighting risks to inflation, the fiscal deficit, the current account deficit and economic growth arising from the prolonged tensions in the Gulf region, the ministry said timely policy decisions and effective implementation will be critical to attracting both domestic and foreign investment.
Supply Chain Weaponisation & Oil Risks
“Global developments related to AI and weaponisation of supply chains in general are reminders of the distance India needs to travel to achieve long-term resilience and strategic leverage. Recent years have been a time for hunkering down and battening down the hatches. Coming years will be no exception,” the Monthly Economic Review for July said.The report also cautioned that a sustained increase in global crude oil prices could once again put pressure on both the fiscal deficit and the current account balance.“… the recent resurgence in global crude oil prices, if sustained, could re-emerge as a source of pressure on financing of both the fiscal deficit and the current account balance,” the report said.According to the ministry, global economic uncertainty intensified during the month as geopolitical tensions in West Asia escalated, leading to renewed upward pressure on crude oil prices after a brief period of moderation.Although oil prices remain well below the sharp spike witnessed during the initial phase of the West Asia conflict, uncertainty surrounding the global economic outlook has increased, the report noted. Brent crude futures rose more than 5% to $88.40 a barrel on Wednesday after the United States and Saudi Arabia carried out targeted strikes in Iraq.Crude oil prices have climbed sharply since the West Asia conflict began on February 28, fuelling concerns over inflation. Brent crude surged from around $73 per barrel before the conflict to a four-year high of $126 per barrel in early May.
Indian Economy Resilient
According to the Finance Ministry’s report, the Indian economy has remained resilient despite an increasingly difficult global environment. However, it cautioned that external uncertainties continue to intensify.“So, India has to reinvent itself and re-imagine its responses to global imperatives if it has to achieve strategic leverage. As external conditions evolve, the continued interplay of domestic reforms, prudent macroeconomic management and swift policy responses, backed by consistent on-ground implementation will remain important in shaping India’s economic trajectory,” the report noted.The ministry said that while policymakers are closely tracking volatility in global crude oil prices arising from geopolitical developments, as well as the potential impact of El Niño weather conditions, the domestic inflation outlook remains cautious but fundamentally well-supported. It attributed this to ongoing efforts to maintain price stability, strong procurement of agricultural commodities and targeted contingency measures.Despite elevated global risks, the report said India’s growth outlook continues to rest on strong domestic fundamentals, sustained policy support and improving structural drivers of the economy.It added that structural reforms undertaken over the past decade, together with higher infrastructure investment, have strengthened the economy’s resilience, as reflected in economic data between March and June 2026.The report also highlighted the resilience of India’s external sector, citing robust export performance, a healthy surplus in services trade and steady remittance inflows that have supported the current account.It further said that recent policy initiatives are expected to encourage capital inflows in the near term. Combined with comfortable foreign exchange reserves, these factors are likely to further strengthen the resilience of the external sector.
