The Finance Ministry in its Monthly Economic Review for April has said that the conflict in West Asia could disrupt supply and increase risks to inflation, trade, and financial flows. However, India’s strong domestic demand, supportive policies, stable financial system, and continued public investment are likely to help protect the economy to some extent. It said prolonged uncertainty, particularly around energy and fertiliser supplies, could test the resilience of India's macroeconomic stability. On top of this, it said the El Nino Southern Oscillation is expected to keep India's Southwest monsoon below normal, and added that most rainfall districts are expected to receive below-normal rainfall this season. Therefore, it said risks are tilted to the upside for inflation, fiscal and external deficits and to the downside for economic growth. 

Observing that India enters FY2026-27 at the intersection of domestic resilience and external turbulence, the report said encouraging a 7-7.4% forecast for the upcoming financial year, only to be clouded by an altered macro-outlook in the wake of the war in West Asia. The Indian economy is estimated to grow at 7.6%, the strongest in recent years. Noting that a 'supply shock' is apparent in the economy, it said that an accompanying demand compression is a serious concern, given high prices, rising inflation, and a reduced pace of economic activity. Inflation may become cost-push as businesses/producers pass on their increased input costs to protect their profit margins. It said a wide spectrum of downstream industries relies directly on the petroleum sector, and it is likely that input cost pressures will be felt widely across the economy.

To temper cost pressures in critical sectors like agriculture, it said the government has taken various measures such as increased allocation of natural gas to the fertiliser production, waiver of customs duty and around 12% increase in nutrient-based subsidy for the upcoming kharif season. The report said that repairing the damage to the oil and gas production/supply infrastructure in the Gulf region may take several months. Further, it said the RBI will continue its proactive approach to ensure adequate liquidity to meet the economy's productive needs. To sustain momentum in the country's trade performance, it said the government has introduced targeted measures complementing its diversified trade strategy. These include the RELIEF scheme; efforts to improve turnaround times and easier switching of fuels; and reforms under the Advance Authorisation Scheme to enable faster approvals and enhance transparency and predictability, alongside the approval for the establishment of the Bharat Maritime Insurance Pool.

Additional interventions, it said such as strengthened port coordination, advisories to improve transparency in shipping line pricing, monitoring of insurance risks, and relaxations to facilitate the movement of stranded cargo, further support trade flows. Looking ahead, it said the conclusion of recent free trade agreements is likely to reinforce trade performance by expanding market access and deepening integration with global value chains. Observing that recent developments underscore that resilience cannot be created overnight in times of crisis, but must be built through sustained and deliberate efforts over years, such as developing strategic energy reserves, accelerating the shift to renewables, and strengthening domestic manufacturing capacity. It added as far as strengths go, India can capitalise on its strong domestic fundamentals and active trade engagement to move forward at the speed the moment demands.