New Delhi, Oct. 1 -- Geopolitical tensions, elevated crude oil prices and tighter global financial conditions could put pressure on India's inflation outlook, particularly through higher imported inflation, according to the Finance Ministry's September Monthly Economic Review. The report said India entered the second quarter of 2026-27 with strong domestic economic activity, exports, capital inflows and foreign exchange reserves. However, it flagged supply disruptions, volatile energy prices and global uncertainty as potential risks to inflation, the rupee and capital flows.
"Geopolitical tensions and elevated crude oil prices could also add to imported inflation pressures," the report said, while highlighting the impact of tighter global financial conditions following the US Federal Reserve's 25-basis-point rate hike in September. The government review also warned that a strong El Nino could affect winter crops, creating another potential source of pressure on food prices. Festive demand and higher input costs could add to price pressures in the near term, although supply-side measures and market interventions could help limit the impact of temporary shocks. India's retail inflation rose to 4.82% in August, while food inflation reached 5.95%. Wholesale inflation accelerated to 9.92%, partly due to renewed pressure from fuel and power prices.
The report noted that the Reserve Bank of India's recent open market operations to absorb surplus liquidity could help maintain balanced financial conditions and prevent excessive demand-side pressure on prices. Despite the risks, the report said India's external sector remained resilient, supported by services exports, remittances, foreign exchange reserves and capital inflows. India's foreign exchange reserves stood at $765.9 billion as of September 18, providing import cover of around 11.1 months. The sizeable reserve position provides a buffer against external shocks, although the government review noted that uncertainty in global markets continues to pose risks. The report also highlighted continued pressure on Indian financial assets, including the rupee, amid unsettled US trade relations, volatile portfolio flows and stronger competition for global capital.
Overall, the government's assessment pointed to a mixed economic outlook. Strong domestic activity and external buffers continue to support the Indian economy, but geopolitical tensions, crude oil prices, global monetary conditions and weather-related risks could create near-term challenges for inflation and financial stability.
Published by HT Digital Content Services with permission from Millennium Post.