Crude prices, El Niño risks may keep inflation under pressure: Finance Ministry

New Delhi: Sustaining economic growth while maintaining price stability will be a key priority for policymakers in the second half of the current fiscal, amid elevated crude oil prices, rising food inflation and uncertainty over the Kharif crop outlook, a finance ministry report said on Thursday.

According to the monthly economic review for October, robust domestic demand, sustained investment, a resilient financial sector and proactive supply-side management have supported India's economic resilience.

However, geopolitical tensions, volatile energy prices and tightening global financial conditions pose challenges to sustaining growth while containing inflation. Policymakers will need to balance growth imperatives with price stability, the report said.

India's external sector remained resilient in September, with total merchandise and services exports growing 11 per cent year-on-year. Merchandise exports rose 23.1 per cent, led by electronics and engineering goods. A steady services surplus helped narrow the overall trade deficit during the month, although the current account deficit widened cumulatively during April-August FY27.

Foreign exchange reserves stood at USD 721 billion as of October 16, providing import cover of 10.3 months. However, pressure on the rupee persists amid global uncertainties.

The report said proactive supply-side measures and direct liquidity interventions could help mitigate imported inflation risks and maintain exchange rate stability. Continued vigilance will be essential to preserve macroeconomic stability. Strong industrial activity, resilient services growth, robust domestic credit expansion and structural and tax reforms are expected to support domestic demand and private investment during the remainder of FY27. The financial sector has remained relatively insulated from rising global sovereign bond yields and volatile equity markets.

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