Indian economy remains on a resilient footing, industrial activity firming up
The Organization of the Petroleum Exporting Countries (OPEC) stated in a monthly update that most recent data for 2Q26 suggests that the Indian economy remains on a resilient footing overall. Consumption indicators held up, unemployment was broadly stable, industrial production growth remained firm and non-food credit growth strengthened further, while the services sector continued to provide steady momentum. Renewed geopolitical tensions have nonetheless revived external downside risks via the energy import bill and the currency. The rupee has been among the weaker major emerging-market currencies, weakening to record lows against the dollar as higher energy costs weighed on the external balance. Inflation risks have risen accordingly, while a weak monsoon and second-round cost pressures point to rising food and core inflation, although the retreat in precious-metals prices has provided a partial offset.
India's near-term outlook remains robust, supported by a resilient services sector, steady momentum in investment and firm industrial activity, with industrial production accelerating in June and capital goods output being particularly strong. External conditions have become less supportive. The renewed increase in energy prices in July has reversed part of the earlier relief, restoring the risk of further and second-round price increases and renewed pressure on core goods inflation, while adding to fiscal constraints. Fiscal consolidation is likely to slow temporarily.
However, OPEC noted that the monsoon is the principal domestic risk. Rainfall improved after a weak start, but El Niño continues to threaten crop yields, rural incomes and food prices. Reservoir storage is an important indicator to watch in this respect, since it determines both irrigation capacity for the coming sowing season and the buffer against deficient rainfall. Storage entering the season has been low, and a further shortfall would weigh on sowing decisions and rural demand.
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