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India’s economy may face headwinds owing to higher energy prices, supply chain disruptions: RBI
May-30-2026

The Reserve Bank of India (RBI) in its annual report for 2025-26 has said that Indian economy may face headwinds on account of higher energy prices and supply chain disruptions. It also noted that the likelihood of El Nino conditions could hit agriculture output. However, healthy corporate and bank balance sheets, the government's continued thrust on capital expenditure and the implementation of trade agreements with key partners are likely to sustain investment and growth momentum.

The report said market volatility persisted due to geopolitical risks and valuation concerns but surged towards the end of March 2026 following the West Asia conflict. The Indian economy exhibited resilience in 2025-26, amidst several external headwinds, supported by strong private consumption, sustained investment and sound macroeconomic fundamentals. The outlook for the Indian economy in 2026-27 remains positive, supported by strong macroeconomic fundamentals, although a prolonged West Asia conflict may pose downside risk.

The RBI also said the outlook for the agriculture sector in 2026-27 remains contingent upon the progress and distribution of the south-west monsoon. It added that the likelihood of El Nino conditions poses downside risks to agriculture output. On price situation, the report said inflation in 2026-27 is likely to remain aligned with the target on the back of adequate foodgrain stocks, sufficient reservoir levels and stable agricultural prospects despite possible El Nino conditions and above-normal summer temperatures.

However, it said the evolving upside risks to inflation may emanate from multiple other factors such as spike in global fuel and commodity prices amid geopolitical tensions, potential spillovers to input and wage costs, and volatility in exchange rate. Considering all these factors, consumer price index-based inflation for 2026-27 is projected at 4.6 per cent with risks tilted to the upside.

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