However, uncertainties around monsoon and still-evolving geopolitical developments in West Asia continue to pose downside risks to growth and upside risks to the inflation outlook, the ministry said in its monthly economic review for June.
Nevertheless, the prevailing pause in the Iran war has brightened growth prospects besides lowering inflation and external deficit risks from what was feared at the peak of the conflict that began February 28.
Foreign investors have also started returning to India’s sovereign debt market, the review said. “It is a matter of time before equity flows turn positive as concerns over the global AI-bubble mount,” it said.
India in June offered capital gains and withholding tax relief to foreign portfolio investors on their government securities holdings, besides expanding the pool of investable sovereign papers.
Meanwhile, the ministry pitched for a national policy on buffer stocks for a range of critical raw materials and inputs, highlighting it as a lesson from the war.
While monsoon rains are expected to improve in July and August, experts point to the increasing unpredictability of rainfall patterns. Among other things, water conservation, including recycling, and utilisation of budgetary allocations for Jal Jeevan Mission may now emerge at the top of the top policy priority list.External headwinds and deficient rainfall so far also underscore the need to reorient India’s farm pricing policies to incentivise cultivation of climate-resilient crops and disincentivise water-intensive ones, the ministry said.
“The steady stream of destabilising events and developments globally and climatically is a reminder of the challenges likely to arise in the coming years and the need for policy to stay a step ahead of them,” it said.
Economic activity has maintained momentum in early months of FY27, the review said. High-frequency indicators such as e-way bill generation, PMI indices, and electricity consumption have gained traction, although some gauges such as those for the core infrastructure sectors saw moderation.
However, weak progress of the Southwest monsoon has weighed on kharif sowing, and the monsoon rainfall deficit is a concern.
Among the many things India needs to build buffers for in the coming years, water may be at the top of the list, according to the ministry. “Emerging investments in advanced manufacturing and digital infrastructure, complemented by regulatory easing and initiatives to strengthen critical mineral supply chains and trade connectivity, are expected to reinforce industrial competitiveness and supply-chain resilience amid an evolving global environment,” the ministry said.