Supply-side pressures weigh on India`s near-term outlook amid West Asia conflict: RBI Bulletin
At a time when West Asia conflict squeezing the shipping routes and trade flows, an article in the Reserve Bank of India (RBI) Bulletin has said the supply-side pressures weighed on India’s near-term outlook. It added that constricted shipping routes and trade flows amid the conflict have increased supply chain pressures to their highest levels since 2022. Further, the prices of commodities for which the Strait of Hormuz is a critical transit route remained elevated in April and early May. The base metal prices, including aluminium, zinc and nickel, rose due to supply disruptions and higher fuel costs.
The article also pointed that the pass-through to domestic prices needs to be monitored despite of the headline inflation remaining firm within the tolerance band. In April, the retail inflation rose to 3.5%, driven mainly by food inflation, while core inflation remained steady. Besides, the article said that the financial conditions, crude oil prices and capital flows continue to pose challenges to the external sector outlook. It noted that the merchandise trade deficit widened in April 2026 over March 2026 primarily on account of crude oil and gold imports.
However, the article said that the robust services exports, positive net FDI flows, foreign exchange reserve buffers and a number of proactive policy measures undertaken by the government and the Reserve Bank are likely to cushion the Indian economy against external headwinds. It added that economic activity showed a mixed trend in April, as evidenced by several high-frequency indicators such as fuel consumption, trade, and logistics. Further, e-way bills continued to achieve double-digit growth backed by GST rate rationalisation, while higher temperatures led to a sharp increase in electricity demand. The views expressed in the Bulletin article are those of the authors and do not represent the views of the RBI.
