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India’s economic activity, inflation and external position have remained relatively stable despite an uncertain global environment, but the outlook for food inflation and agricultural output remained cautious amid concerns emanating from El Nino, the finance ministry said on Monday in its Monthly Economic Review (MER) for August.
El Nino is expected to peak in late 2026.
Finance ministry’s concern on inflation comes after CPI inflation shot to a 19-month high of 4.45 per cent in July. Food inflation peaked to 5.52 per cent in July, highest in the current CPI series launched earlier in February.
“Looking ahead, food prices, global commodity trends and weather-related risks remain key factors shaping the inflation outlook,” the review said.
Food inflation could absorb a large share of household disposable income constraining discretionary spending by households, the ministry said in the MER.
But at the same time, this may also limit the extent to which cost-side pressures are passed through to final consumer prices, the MER added.
“Going ahead, easing cost pressures and firm demand conditions are expected to support activity, although the external environment remains a key source of uncertainty,” the review said.
“Domestic economic activity remains steady, with resilient domestic demand providing support amid some moderation in the pace of expansion.”
Finance ministry’s comments come as data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Monday showed that the Indian economy grew 7.8 per cent in April-June quarter of FY27.
On the external front, the ministry noted that India has so far demonstrated unexpected strength, remaining well-positioned to absorb pressures from shifting global trade dynamics and volatile financial markets.
Although the current account deficit (CAD) widened marginally in Q1 FY27, the review pointed to a subsequent recovery in capital flows and strategic engagements such as the BRICS initiatives to expand intra-bloc trade, integrate MSMEs and build resilient value chains as key drivers for export diversification.
“Taken together, these developments provide a supportive foundation for maintaining external sector stability, even as global uncertainties persist,” the report said.
But looking beyond immediate buffers, the ministry emphasised that sustaining long-term industrial competitiveness will require structural upgrades at home.
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