India’s near-term outlook is somewhat clouded by supply-side pressures, and the spillover impact of the West Asia conflict on domestic inflation needs to be monitored, according to the RBI Bulletin. While the global economy remained shadowed by uncertainties in West Asia, an article in the Bulletin said domestic economic activity exhibited resilience in April. “The conflict in West Asia continued to exert pressure on commodity markets, global trade flows and supply chains, contributing to the volatility in financial markets. India has entered this phase from a position of macroeconomic strength,” the article on the state of the economy said. “Domestic demand continues to be the key driver of growth. However, the near-term outlook is somewhat clouded by supply-side pressures. “Although headline inflation remains firmly within the tolerance band, the pass-through to domestic prices needs to be monitored,” it said. Retail inflation rose to 3.5 per cent in April, driven mainly by food inflation, while core inflation remained steady.

 

Against the backdrop of the Iran war, the article said constricted shipping routes and trade flows increased supply chain pressures to their highest levels since 2022. 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 financial conditions, crude oil prices and capital flows continue to pose challenges to the external sector outlook,” it said. The merchandise trade deficit widened in April 2026 over March 2026 primarily on account of crude oil and gold imports. Nevertheless, 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 said. India is witnessing a trade reconfiguration amidst the emerging geopolitical situation. Its trade through the Strait of Hormuz, which had declined sequentially in March, went up in April 2026.