Geopolitical tensions, high crude may fuel India's imported inflation, says government report

By Manoj Kumar

NEW DELHI, ‌Oct 1 (Reuters) - ​Geopolitical tensions, ​high oil prices and tighter global financial conditions could raise India's imported inflation, a government report said on ‌Thursday, while warning that a strong El Nino could ⁠hurt winter crops.

India entered the second quarter of 2026/27 with strong domestic activity, ‌exports, capital inflows and foreign ‌exchange reserves, the finance ministry said in its September Monthly Economic Review.

However, it cautioned that supply disruptions, volatile energy prices and ​global uncertainty could pose near-term risks to inflation, the rupee and capital flows.

"Geopolitical tensions and elevated crude oil prices could ⁠also add to imported inflation pressures," the report said, particularly after the U.S. Federal Reserve's ​25-basis-point rate hike in September.

The report said the Reserve Bank of India's recent open market operations to ​absorb surplus liquidity could help maintain balanced ‌financial conditions and curb "undue demand-side overheating."

Festive demand and higher input costs could add to near-term price pressures, ⁠it said, but proactive government supply-side and market interventions could help contain upside risks and cushion temporary price shocks.

Retail inflation rose to 4.82% in ⁠August, while food inflation stood at 5.95%. Wholesale inflation accelerated to 9.92%, driven ​in part by renewed fuel and power price pressures.

India's external sector remained resilient, supported by services exports, remittances, forex reserves and capital inflows, the report ‌said. Foreign-exchange reserves stood at $765.9 billion as of Sept. 18, providing import cover of about 11.1 months.

However, ‌it said short-term pressure on Indian assets, including the rupee, persists ⁠amid unsettled U.S. trade relations, ‌volatile portfolio flows ​and rising competition for global capital.

(Reporting by Manoj Kumar; Writing by Shanima Aniyeri; Editing by Clarence Fernandez and ‌Nivedita Bhattacharjee)

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