Amid global uncertainties, outlook for India is one of 'cautious optimism': FinMin report

India’s monetary and financial stability stands out as a key strength.

Even as the global economic outlook remains clouded by uncertainties, India’s economy continues to demonstrate resilience, supported by policy stability, easing inflation, a stable job market and a resilient external sector, the finance ministry said in a report on June 27. Amidst these global uncertainties, the outlook for India is one of "cautious optimism", it said.

In the Monthly Economic Review for May, the ministry stated that these may be "nervous but exciting times" for the Indian economy. "Geopolitics may offer us opportunities that appeared remote previously. It is up to us to be flexible enough to ride the tide."

India’s steady economic performance in FY25 underscores the resilience of domestic growth drivers amid a challenging global environment, said the ministry. In the previous fiscal, however, the country’s economy grew at 6.5% -- the lowest in four years.

"Robust private consumption and resilient services sector activity were key contributors to overall economic expansion (in FY25)," noted the ministry, adding that the positive momentum has been extended into the early months of FY26, as reflected in the performance of high-frequency indicators.

"Rural demand has strengthened further, supported by a healthy rabi harvest and a positive monsoon outlook. Urban consumption is being supported by increased leisure and business travel, as seen in the rise of air passenger traffic and hotel occupancy," the ministry said. However, there are signs of softening in areas like construction inputs and vehicle sales.

That said, global growth continues to face headwinds, with persistent trade frictions, heightened policy uncertainty, and ongoing geopolitical conflicts weighing on the broader economic outlook. "These external challenges could potentially impact India’s growth trajectory and warrant close and continuous monitoring," the ministry said. For FY26, the Reserve Bank of India (RBI) has projected GDP to grow at 6.5%.

Meanwhile on price pressures, the ministry said that the country’s disinflationary outlook is bolstered by improved agricultural production estimates and a forecast of an above-normal monsoon. The RBI has revised its retail inflation projection for FY26 downward to 3.7 percent.

The southwest monsoon arrived on 24 May 2025 - its earliest onset since 2009 and well ahead of the typical June 1 schedule - boosting prospects for kharif sowing and improving reservoir levels, the ministry said.

"Encouragingly, reservoir levels continue to improve, offering optimism for adequate irrigation in the upcoming kharif season. Still, there may be some upside risk to inflation stemming from global commodity price volatility, particularly a surge in crude oil prices, trade-tariff issues, geopolitical conflicts and potential weather-related disruptions," it added.

Data sourced from Petroleum Prices and Analysis Cell (PPAC) shows that the price of India’s crude oil basket has averaged $69.89 per barrel in June so far, higher than $64.04 in May, and $67.73 in April.

The ministry further noted that India’s monetary and financial stability stands out as a key strength, bolstering its attractiveness to investors.

In light of evolving global trade alignments and shifts in industrial policy, the country has prioritised bilateral Free Trade Agreements (FTAs) and Comprehensive Economic Cooperation Agreements (CECA) to diversify its exports, enhance domestic manufacturing, and integrate more fully into global value chains, it said. "Furthermore, the labour market in India has remained stable, with multiple surveys and reports indicating a positive employment outlook."

On financial markets, the ministry stated that they experienced volatility as a result of external developments. However, the Indian government bond market exhibited stability and certainty in May, driven by factors such as the announcement of a record surplus dividend by the RBI and a robust growth reading of Q4 FY25, it said. "Consequently, the risk premium on India’s government bonds decreased to 182 basis points as of May 30 2025."

Also, India’s forex reserves as of June 13, 2025, forex reserves remain strong, at $699 billion, which provides an import cover of 11-and-a-half months. Moreover, the Indian rupee has experienced moderate volatility, in contrast to the more pronounced adjustments observed in other economies, said the ministry.