The economic outlook in 2024-25 looks bright, but the hardening of crude oil and supply chain concerns pose an upside risk to inflation and consequently to growth, the finance ministry monthly economic report said.

“Sustained increases in shipping costs due to disruption can drive up inflation. The crisis is also reverberating in global food prices. Disruptions in grain shipments from the Russian Federation, Ukraine, and Europe pose risks to global food security,” the ministry said in its monthly review.

Experts have been for a while raising concerns over a resurgence in global inflationary pressures as shipping costs soar due to relentless attacks by Yemen-based Houthi rebels on vessels passing through the Red Sea, a route that accounts for 30 per cent of the world’s container traffic and 12 per cent of global trade

A rise in crude price would trigger inflationary pressure on the economy and impact growth. India imports over 80 per cent of its needs.

The review said India may face a sectoral impact on agricultural commodities, marine products, textiles and chemicals, capital goods, and petroleum products due to the ongoing Red Sea crisis.

“To effectively address these challenges, there may be a need to diversify trade routes and transportation options. That would increase transit costs and affect the price competitiveness of Indian merchandise exports. We have to see if it impacts the value of merchandise exports in 2024-25,” the review said.

“On the external front, the narrowing merchandise trade deficit and the rising net services receipts are expected to result in an improvement in the current account balance in 2023-24,” it added.