India’s near-term outlook somewhat clouded by supply-side pressures: RBI Bulletin

India’s economic outlook faces challenges from supply-side pressures and geopolitical tensions, according to the Reserve Bank of India (RBI) Bulletin. While domestic demand remains the primary growth driver, the conflict in West Asia has heightened volatility in commodity markets, global trade flows, and supply chains. The Strait of Hormuz’s critical role in transit has kept prices elevated for commodities like aluminium, zinc, and nickel, exacerbating disruptions. Retail inflation rose to 3.5% in April, primarily due to food inflation, though core inflation remained stable. The RBI notes that while headline inflation stays within tolerance, domestic price pass-through risks require monitoring. Trade pressures worsened in April 2026, with the merchandise trade deficit expanding due to higher crude oil and gold imports. Despite these challenges, India’s economy shows resilience through robust services exports, positive foreign direct investment (FDI) flows, and strong foreign exchange reserves. The RBI highlights proactive policy measures as potential buffers against external headwinds. Trade through the Strait of Hormuz rebounded in April after a March decline, reflecting ongoing geopolitical trade reconfigurations. High-frequency indicators like fuel consumption and logistics activity showed mixed trends in April. E-way bills grew double-digit due to GST rationalization, while petroleum consumption fell sharply due to reduced naphtha and LPG use. Electricity demand surged amid higher temperatures, underscoring seasonal demand fluctuations. The RBI Bulletin acknowledges these views are author-specific and not official bank policy. The analysis underscores India’s macroeconomic strength but warns of lingering risks from global supply chain strains and inflationary pressures.