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“The combined impact across the four channels on growth, inflation, the fiscal balance, and external balances is likely to be significant,” Nageswaran said.
The Finance Ministry’s March Monthly Economic Review noted that economic activity remained robust up to February, supported by strong supply- and demand-side indicators, resilient domestic consumption, and sustained public capital expenditure.
High-frequency indicators reflected this strength, with manufacturing and services activity staying in expansionary territory, while vehicle sales and digital payments continued to post healthy growth.
Industrial output, particularly in steel and cement, underscored the continued momentum in infrastructure and construction, highlighting the role of government-led capex in anchoring growth amid global uncertainty.
Also Read: India’s limited oil buffers, reliance on subsidies heighten risks from Middle East conflict, Moody’s warnsHowever, the report flagged a shift in momentum in March as geopolitical tensions in West Asia disrupted energy markets and supply chains.
“The recent shocks are being transmitted through higher input costs, supply constraints, and pressures across sectors,” the review said, adding that there are early indications of moderation in economic activity.
High-frequency data for March points to a sequential slowdown, including a decline in e-way bill generation and softer output growth in flash PMI estimates, even as year-on-year trends remain positive.
Rising energy, freight and insurance costs are emerging as key headwinds, feeding into domestic production chains and creating cost-push pressures, particularly in import-dependent sectors.
Despite this, demand conditions remain relatively resilient. Continued growth in vehicle registrations and digital transactions has supported consumption, although rural sentiment has shown some signs of softening.
This divergence suggests the slowdown is being driven more by supply-side constraints and rising costs rather than a sharp weakening in demand.
Inflation trends mirror this dynamic. Retail inflation has begun to edge up, led by food prices, while the full impact of rising crude oil costs is yet to materialise, posing upside risks going forward.
Nageswaran cautioned that “the combined impact across the four channels on growth, inflation, the fiscal balance, and external balances is likely to be significant,” underscoring the breadth of the shock facing the economy.
He emphasised the need for targeted policy action, including immediate relief for vulnerable households and businesses, alongside efforts to create fiscal space and build long-term buffers in critical commodities.
The CEA also noted that demand moderation could ease the central bank’s policy dilemma, allowing it to treat inflation as a supply-side shock, rather than responding with broad-based rate hikes that burden the entire economy.
At the same time, he called for leveraging the crisis to accelerate reforms and improve competitiveness, stressing the need for faster decision-making and an “entrepreneurial mindset” within the bureaucracy.
Overall, the March review presents a nuanced picture of an economy entering a global shock from a position of strength but beginning to show early signs of strain, with risks now “tilted to the downside” and requiring close monitoring and proactive policy response.
