Oil prices have receded, but too soon to sound ‘all clear’, says Finance Ministry

New Delhi: The higher oil prices triggered by a brief Israel-Iran war have come down, but it is too soon to sound the “all clear” for the rest of the year, said a Finance Ministry report on Friday.

The ministry’s monthly economic review also stressed that with no major imbalances in the macro aggregates, a subdued inflation rate combined with a growth-supportive monetary policy stance, India’s macroeconomic health is in a relative goldilocks situation.

The brief Israel-Iran war, followed by the US intervention, pushed the price of crude oil sharply higher, it noted.

“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,” the ministry said.

While there is an ample global supply of oil, insurance costs and the perceived risk of potential closure of choke points might cause the landed price to rise. “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. In this, India is on a better footing than many other nations,” it said.

The government seeks to build on it through critical agriculture, manufacturing, resources and technology missions and deregulation initiatives that unleash productivity.

These may be nervous but exciting times for the Indian economy, the review report said, adding, “Geopolitics may offer us opportunities that appeared remote previously. It is up to us to be flexible enough to ride the tide”.

It further said India’s economic momentum continues to grow, reflecting the country’s ability to navigate complex global challenges while sustaining domestic growth drivers.

In FY25, real GDP grew by 6.5 per cent, aligning with the second advance estimates.

This growth came amid a challenging global environment marked by geopolitical tensions and trade uncertainties, the ministry said.

“Robust domestic demand, particularly a rebound in rural consumption, steady investment activity, and a positive shift in net exports, underpinned the economy’s resilience,” it said, and added the services sector continued to be the main driver of growth on the supply side.

Overall, the ministry said the outlook for the Indian economy remains positive, demonstrating resilience amid a turbulent global environment, supported by robust domestic demand, easing inflationary pressures, a resilient external sector, and a steady employment situation.