India’s domestic demand stays a main factor behind economic expansion, yet the short-term outlook appears somewhat uncertain because of supply constraints linked to the West Asia situation, according to a Reserve Bank of India report. The central bank stated in its State of the Economy section of the April 2026 monthly bulletin that domestic demand remains the primary growth driver. However, near-term prospects face pressure from supply-side factors. Although overall inflation stays inside the acceptable range, the impact on local prices requires watching. Financial conditions, oil prices, and capital movements continue to challenge the external sector. The RBI observed mixed demand signals. E-way bills maintained double-digit increases and fuel use for petrol and diesel rose, yet total petroleum consumption dropped in April owing to declines in naphtha, LPG, and other products. Electricity demand surged with higher temperatures, while toll transactions fell, partly due to the FASTag Annual Pass introduced in August 2025. Demand stayed broad-based with rural support. Rural automobile sales grew at double digits in April with some moderation, and tractors, two-wheelers, and urban passenger vehicles showed strong gains. In contrast, air passenger traffic declined further due to higher aviation fuel prices. Labour market conditions eased in the January-March 2026 quarter, with lower participation and employment ratios and higher unemployment, mainly in rural regions. This shift coincided with more regular salaried jobs in secondary and tertiary sectors. On the supply side, summer sowing advanced well, exceeding normal acreage and last year’s levels except for rice. Industrial activity showed resilience in April despite the West Asia conflict, with core industries rising on cement, steel, and electricity output. Manufacturing PMI edged up slightly as cost pressures and geopolitical effects slowed new orders and production. The services sector held steady, with Services PMI accelerating from transport gains and new domestic orders, though export orders weakened due to the conflict and reduced tourism.
