India's growth shows early signs of moderation amid US-Iran war
What's the story
India's economic momentum remained strong until early 2026, but the Finance Ministry's March Monthly Economic Review has flagged emerging signs of moderation. The change comes as external shocks from the West Asia crisis and rising crude prices begin to impact the economy. The report highlights resilience in domestic demand, infrastructure expansion, and policy support as key factors sustaining this momentum.
Economic indicators
Public capital expenditure lifts infrastructure activity
The review also highlights strong growth in steel and cement production, which indicates sustained momentum in infrastructure and construction activity. This is largely supported by public capital expenditure. However, the report notes that geopolitical tensions in West Asia have begun to disrupt energy markets and logistics chains as of March 2026.
Economic pressures
E-way bills fall as PMI softens
The review notes that these recent shocks are being transmitted through higher input costs, supply constraints, and pressures across sectors. There are early signs of some moderation in economic activity. The report observes a month-on-month decline in e-way bill generation and softening output growth in flash PMI estimates for March 2026. While year-on-year (YoY) trends remain positive, this sequential slowdown indicates the start of demand- and supply-side adjustments.
Cost pressures
Rising energy and logistics costs
The report highlights that rising input costs, especially for energy and logistics, are emerging as major headwinds. Supply disruptions and higher freight and insurance costs are feeding into domestic production chains, creating cost-push pressures across industries. These pressures are particularly acute in sectors dependent on imported inputs, where growth risks are becoming increasingly evident.
Demand resilience
Demand resilient but rural sentiment softens
Despite these challenges, domestic demand has shown relative stability so far. The review notes that demand conditions appear relatively resilient, backed by continued growth in vehicle registrations and digital transactions. However, rural sentiment has shown some softening. This divergence between steady demand and weakening supply conditions suggests that the slowdown is being driven more by cost and supply constraints than a collapse in consumption.
Inflation impact
Retail inflation rises amid crude uncertainty
The report also notes that retail inflation has started to rise, mainly due to food prices. However, the full impact of rising crude oil costs is yet to be seen. The review warns these pressures "pose an upside risk going forward," indicating inflation could intensify if global energy prices remain high. Overall, the assessment presents a nuanced picture of an economy entering this global shock from a position of strength but beginning to show early signs of strain.