In its monthly economic review, the ministry said the disruption of shipping and energy flows through the Strait of Hormuz remains the most critical variable shaping India’s external sector and inflation outlook, as geopolitical tensions continue to affect global oil markets.

The report noted that recent increases in fuel prices, combined with rising upstream production costs, are likely to gradually feed into retail inflation through higher transportation, energy and food expenses.
Officials warned that a significant rainfall shortfall during the monsoon season could further intensify inflationary pressures by affecting agricultural output and food supplies. Such a scenario could also weaken rural consumption and weigh on broader economic growth.

“The near-term outlook for the Indian economy is one of cautious resilience,” the ministry said, while emphasizing the need for continued policy vigilance amid multiple external and domestic risks.
The report highlighted a combination of elevated global energy prices, depreciation of the Indian rupee, rising input costs and the possibility of below-normal rainfall as factors that could complicate inflation management in the months ahead.

India remains heavily dependent on imported crude oil, making it particularly vulnerable to supply disruptions and price volatility stemming from geopolitical developments in the Middle East. Any prolonged disruption to maritime traffic through the Strait of Hormuz could increase import costs and widen inflationary pressures across sectors.

Despite these concerns, inflation has remained relatively contained. India’s annual retail inflation rate rose marginally to 3.48% in April, remaining below the target level monitored by the Reserve Bank of India.
The assessment comes as policymakers seek to balance economic growth with price stability amid an uncertain global environment marked by geopolitical tensions, energy market volatility and weather-related risks to agricultural production.

The Finance Ministry publishes its economic review on a monthly basis to assess macroeconomic trends and emerging risks facing the Indian economy.

Companies producing items such as plush toys, footwear, apparel and household goods say the effects of tighter oil markets are already filtering through supply chains, with suppliers raising prices for key inputs derived from petroleum.

Executives report early signs of cost inflation that could eventually be passed on to consumers if disruptions persist.Aleni Brands, a Florida-based manufacturer of soft toys made from polyester and acrylic fibers, said its Chinese suppliers increased material costs by 10% to 15% within weeks of the conflict’s escalation.

Chief Executive Ricardo Venegas said the company is absorbing higher costs for now but may raise prices in 2027 if conditions persist.Petrochemicals derived from oil and natural gas are used in more than 6,000 consumer products, according to the US Department of Energy, including items such as lipstick, pajamas, detergents, synthetic fabrics and medical supplies.

While the majority of crude oil is used as fuel, a significant portion is refined into chemical compounds that underpin modern manufacturing.Industry experts say crude oil, composed primarily of hydrocarbons, is processed into core petrochemicals such as ethylene, propylene and benzene, which form the basis of plastics, nylon and polyester.

These materials are widely used across sectors ranging from textiles to electronics and healthcare.Consultants note that material costs represent a substantial share of manufacturing expenses.

Andrew Walberer, a partner at Kearney, said raw materials can account for up to 30% of production costs for products such as garments, amplifying the impact of commodity price swings.

Trade groups warn that sustained oil prices above $90 per barrel could accelerate inflationary pressures across supply chains. The Footwear Distributors and Retailers of America estimates that petrochemical-based materials make up roughly 70% of synthetic footwear, with oil price fluctuations directly influencing around 30% of those costs.

The group projects retail shoe prices could rise by 1.5% to 3% in the coming months.Manufacturers are also adjusting procurement strategies. Rinseroo, which produces portable washing attachments using petroleum-based components such as polyvinyl chloride, said it increased its order volumes from China after being warned of a potential 30% cost increase.

Founder Lisa Lane said the company is exploring cost-cutting measures while delaying further price hikes after earlier increases linked to tariffs.In the healthcare sector, Gentell said it plans to raise prices by about 15% as costs for petrochemical-based adhesives and energy rise.

Chief Executive David Navazio estimated overall company expenses have increased by roughly 20%.Analysts say the broader economic impact of the conflict is already visible in higher fuel prices, which are feeding into transportation and logistics costs.

This is pushing up prices for goods moved by diesel-powered freight networks, as well as air travel costs due to rising jet fuel prices.

With supply disruptions now extending into their second month, industry participants say prolonged instability could lead to sustained cost pressures across global manufacturing, particularly for products reliant on synthetic materials and plastic-based components.