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The Finance Ministry has cautioned of inflationary risks to the economy due to global demand-driven recovery in commodity prices and high input cost.

The Monthly Economic Review for June 2021 released by the Department of Economic Affairs (DEA) noted that inflationary pressures took an upturn in May 2021 with headline inflation (CPI-C) and WPI inflation touching a high of 6.3 percent and 12.94 per cent, respectively.

Supply side disruptions in states and unfavourable base effects drove the broad-based momentum in retail inflation across food, fuel and core categories. On the other hand, electricity and manufactured products inflation led the uptick in wholesale inflation.

Healthy monsoon coverage, gradually rising Kharif sowing and unlocking of states is expected to ease food, and thereby headline, inflation, it said.

"However, risks due to global demand-led recovery in commodity prices and input cost pressures remain," it said.

As the Indian economy struggles to shed the impact of the second wave of Covid-19, the report suggested that maintaining a fast past of vaccination and plugging the lags in the healthcare infrastructure in the country would be the most sustainable stimulus for the durable recovery of the Indian economy.

Resilient tax collections of the Central government in the first two months of FY 2020-21 and sustained momentum in capital expenditure, particularly in the road and rail sector, augurs well for continued economic recovery driven by capital expenditures, it said.

The recently announced economic relief package is expected to further oil the wheels of the capex cycle via implementation of the PLI scheme and streamlining of processes for PPP Projects and Asset Monetisation, the review said.

Consumption sentiment is expected to pick up with further enhancement of employment support under the Aatma Nirbhar Bharat Rozgar Yojana (ANBRY), targeted support to the urban poor through the credit guarantee scheme for on-lending by micro-finance institutions, and wider Bharat-Net digitisation coverage.

Free food-grain and enhanced fertiliser subsidies under the package along with continued MGNREGA implementation, on the other hand, would serve as a cushion for rural demand in the coming quarters, the review said.