Finance Ministry Calls for Swifter Policy Response Amid AI, Trade Weaponisation Risks

India needs to rethink and reinvent its policy responses to a rapidly shifting global landscape, particularly the uncertainties introduced by artificial intelligence (AI) and the weaponisation of trade, the Finance Ministry said in its Monthly Economic Report (MER) for July.

The report maintained that India's economic outlook remains resilient despite mounting global uncertainty, crediting strong domestic fundamentals, continued policy support, and structural reforms carried out over the past decade.

At the same time, it flagged upside risks to inflation, the fiscal deficit, and the current account deficit, alongside downside risks to growth, all linked to the ongoing standoff in the Gulf region and firmer global crude prices.

The ministry said the continued interplay of domestic reforms, careful macroeconomic management, and swift, well-implemented policy responses will be central to shaping India's economic trajectory going forward. It added that a defensive, wait-and-watch posture has defined recent years, and that the period ahead calls for a more assertive approach to attract foreign and domestic investment.

Industrial Growth and Inflation

The report pointed to the revised Index of Core Industries (new base year 2022-23), which grew 5% year-on-year in June 2026, led by iron ore, electricity, cement and steel. It also cited the revised Index of Industrial Production, which showed manufacturing held up in May 2026 on the back of capital goods-led investment, even as high-frequency indicators like e-way bill generation cooled somewhat in June.

On prices, the ministry said the domestic inflation outlook remains watchful but well-supported, backed by active price stability measures, strong agricultural procurement, and targeted contingency planning.

It noted the IMF has projected global headline inflation at 4.7% for 2026, while the RBI's Monetary Policy Committee has held the repo rate at 5.25% with a neutral stance, projecting FY27 CPI inflation at 5.1%.

The report separately flagged that a sustained rise in global crude prices, if it persists, could re-emerge as a pressure point for both the fiscal deficit and the current account balance.

Emerging Growth Sectors

The ministry pointed to strength in India's external sector, robust exports, a services trade surplus, and steady remittance inflows, as a source of resilience for the current account. On the global backdrop, it cited the IMF's July 2026 World Economic Outlook update, which projects global growth slowing to 3.0% in 2026 from 3.2% in 2025.

The report also flagged progress in newer areas such as commercial space and hydrogen-based mobility as signs of India's expanding industrial and technological base. It called for building adequate buffers in energy, industrial metals and critical minerals, noting that sustained firmness in their prices underlines the need for greater self-reliance in these areas.

The review follows Prime Minister Narendra Modi's meeting with top economic officials earlier in the week, where he stressed that reform must be a continuous exercise in improving governance and institutional efficiency, not a one-off exercise.