The union finance ministry today said the Indian economy exhibited "cautious resilience" in the month of May amid disruptions caused by the West Asia crisis. The ministry called for monetary, fiscal, and structural agility to safeguard growth and manage inflation in the current financial year. 

It may be noted that the statement comes just ahead of the upcoming monetary policy committee meeting, which begins from June 3. 

"Overall, India's macroeconomic position in May 2026 reflects cautious resilience. Strong services exports, adequate foreign exchange reserves, and a stable labour market provide a firm foundation," the department of economic affairs said in the monthly economic review released short while back. 

"However, the confluence of elevated global energy prices, a depreciating rupee, rising upstream cost pressures and the prospect of a below-normal monsoon calls for sustained policy vigilance. Navigating FY27 will require agility across monetary, fiscal and structural dimensions to safeguard growth momentum and keep inflation durably anchored, even as the global environment remains uncertain," it added. 

The ministry said the West Asia conflict has emerged as a major shock to the already fragile global recovery, with its effects increasingly visible across energy markets, supply chains, trade routes and global financial conditions.

"Elevated energy, transportation, and logistics costs have revived inflationary pressures and renewed stagflation concerns across major economies," it said. 

"Confronted with these pressures, major central banks are expected to maintain restrictive monetary policy stances for longer than previously anticipated, pushing sovereign bond yields in advanced economies to multi-year highs," it added. 

"Across emerging markets, the impact remains uneven, energy importing economies face mounting pressures from currency depreciation, capital outflows,

and higher import bills, while commodity exporters remain relatively better positioned. In response, several countries have adopted energy-conservation and demand-management measures," it said. 

What will be the impact of prolonged disruptions? 

The review report said prolonged disruptions to Gulf energy supplies could further weaken global growth and intensify macroeconomic vulnerabilities across economies.

"For India, these external pressures are beginning to transmit, selectively but perceptibly, into domestic economic conditions," it said. 

What do high frequency indicators suggest? 

"The Indian economy maintained its growth momentum in April 2026, with E-way bill generation, PMI indices and electricity consumption remaining in

expansionary territory. However, the moderation in the Eight Core Industries Index and fuel consumption signals that global headwinds are gradually finding their way into select segments of domestic activity," it added. 

The inflation dynamics of April 2026 reflect a growing divergence between relatively contained consumer prices and sharply rising wholesale prices, the report said. 

"While retail inflation increased only marginally to 3.48 per cent and remained below the RBI’s target, pressures intensified in select food items and services such as restaurants and accommodation. In contrast, wholesale inflation accelerated sharply to 8.3 per cent, driven primarily by elevated global energy prices, currency depreciation and low base effect," it added. 

 "The sharp rise in upstream price pressures, along with recent increases in fuel prices, suggests a gradual pass-through to retail inflation through higher transport, energy, and food-related costs in the coming months. Adding to these near-term risks, the IMD has projected overall monsoon rainfall at around 92 per cent of the long period average," it added.