'Cannot Take High Growth For Granted': DEA Flags El Nino, Crude Oil Shock And Employment Risks

India's economic growth momentum remains largely intact heading into the second quarter of FY27, anchored by robust domestic demand and an above-normal monsoon. However, mounting external volatility, emerging inflationary pressures, and persistent household anxiety over jobs mean the country cannot afford complacency, the Department of Economic Affairs (DEA) said in its latest Monthly Economic Outlook on Thursday, Oct. 1.

The report, released by the Ministry of Finance, delivered a balanced assessment of the economy: while high-frequency domestic indicators reflect sustained dynamism, maintaining a high-growth trajectory will demand rigorous macroeconomic discipline and swift policy execution. Domestically, the most pressing structural challenge highlighted in the review is the employment landscape, according to the DEA economic review.

While economic output remains solid, household sentiment regarding near-term job creation remains cautious and pessimistic, pointing to an uneven recovery across income strata. The DEA stressed that India "cannot take high growth for granted." Navigating the current global landscape will hinge on three core pillars: preserving macroeconomic stability, reinforcing structural resilience, and executing rapid, predictable, and consistent policy decisions.

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Strong Domestic Pillars vs. External Friction

According to the DEA, India's macroeconomic outlook for Q2 FY27 continues to demonstrate resilience. A favourable south-west monsoon has brightened agricultural prospects, supported rural demand, and bolstered core economic activity across multiple sectors. Manufacturing activity has sustained its upward momentum, underpinned by steady capacity utilisation and infrastructure spending. Notably, India's manufacturing sector growth hit a seven-month high in September.

However, the report noted that sustaining this performance requires a structural shift. The DEA stressed that domestic manufacturers must aggressively target global scale, deepen value addition, and diversify export baskets to build long-term competitiveness. On Sept. 30, Chief Economic Advisor V Anantha Nageswaran said the second half of the current fiscal is going to be challenging because downside risks to global growth have increased and interest rates are rising across the world.

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Rising Inflation Risks and Cautious Sentiment

Despite current stability, the report sounded a note of caution on price pressures. Upside risks to inflation are resurfacing, driven by erratic weather patterns associated with El Niño, fluctuations in global crude oil prices, ongoing geopolitical conflicts due to the US-Iran war and Middle East tensions, as well as the rising industrial input costs. These cost pressures, if persistent, could strain corporate margins and complicate monetary easing paths, a sper DEA.

Investor sentiment also reflects growing caution. Global financial markets remain on edge amid unpredictable US trade and tariff policies, while recurring spikes in global energy benchmarks continue to weigh on capital flows and corporate planning. The domestic economic momentum induced by GST rate cuts is still there, CEA Nageswaran said, adding that but it is going to be a “challenging environment as you have interest rate rising in the world and India as well".

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