While India’s macroeconomic health is in a “relative goldilocks situation”, the prevailing global uncertainty means these may be “nervous but exciting times” for the economy, the Ministry of Finance said on Friday.
“The brief Israel-Iran war, followed by the US intervention, pushed the price of crude oil sharply higher. Its persistence would have threatened India’s growth and fiscal outlook in the current financial year. Thankfully, there is a ceasefire, and oil prices have retreated sharply. There is an ample global supply of oil, but insurance costs and the perceived risk of potential closure of choke points might cause the landed price to rise,” the ministry said in its monthly economic review report for May.
“Therein lies the risk to India. For now, the risk has receded. But it is too soon to sound the ‘all clear’ for the rest of the year. But, then, we have to get used to doing the balancing act or the high-wire act for some time to come,” it added.
Global crude oil prices shot up after Israel attacked Iran on June 13, with the US joining in a week later and hitting three Iranian nuclear sites. However, tensions eased rapidly as concerns over Iran blocking the key Strait of Hormuz proved unfounded and US President Donald Trump announced a ceasefire on June 24, leading to oil prices cooling and falling below $70 per barrel.
Economy resilient
Commenting on the Indian economy after the Gross Domestic Product (GDP) grew by a higher-than-expected 7.4 per cent in January-March 2025, the Finance Ministry’s report said high-frequency data indicated that the performance in the first two months of the current fiscal had been “resilient” amid “heightened geopolitical situation”.
“E-way bill generation continues to climb, reaching a second all-time high level in May 2025, to 122.7 million. On a YoY (year-on-year) basis, it continues to expand in double digits, signalling robust business activity. Furthermore, diesel and petrol consumption reached record-high levels in May 2025. This increase could primarily be attributed to increased leisure travel during the summer season, enhanced industrial activities boosting transport operations, and intensified agricultural irrigation efforts,” ministry said. However, it noted that trade policy uncertainty had increased “significantly” in recent months, even though India’s merchandise and services exports in May increased by 2.8 per cent compared to a year ago, which the ministry said “underscores the resilience of our exports in the face of tariff uncertainties and subdued global economic conditions”.
On the price front, inflation measured by the Consumer Price Index (CPI) fell to a 75-month low of 2.82 per cent in May, with the Reserve Bank of India’s (RBI) Monetary Policy Committee cutting the repo rate by another 50 basis points (bps) earlier this month on June 6 to 5.5 per cent, taking the total quantum of its rate cuts in 2025 to 100 bps. At the same time, the RBI announced a 100 bps reduction in the banks’ Cash Reserve Ratio that will come into effect later this year. According to the Finance Ministry, the MPC’s “decisive actions…aim to ease funding costs, release loanable funds for the banking sector and thus support credit growth”.
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Positive jobs outlooks
While the unemployment rate rose to 5.6 per cent in May from 5.1 per cent in April as per the statistics ministry’s Periodic Labour Force Survey – primarily due to seasonal factors – the Finance Ministry said the outlook for the jobs market was positive.
“Going forward, the outlook for hiring and employment appears steady. The TeamLease Employment Outlook Report has estimated a net employment growth of 2.8 per cent in H1 (April-September) of FY26. The report states that 47 per cent of employers intend to expand their workforce in H1 FY26, indicating sustained talent acquisition momentum. The report also emphasises a shift in hiring from quantity expansion to quality expansion with emphasis on skill density, retention over replacement, and AI-driven productivity,” the Ministry said.
