India’s economy appears to be on stable footing heading into the second quarter of FY26, supported by resilient domestic supply and demand fundamentals, even as challenges such as weak credit growth and global uncertainty persist, the finance ministry said in its latest monthly economic review.
"All that said, the economy has the look and feel of 'steady as she goes' as far as FY26 is concerned," the ministry said, summing up the outlook for the current fiscal, reported PTI.
Inflation remains within the Reserve Bank’s target range, and monsoon progress is on track, the review noted, adding that macroeconomic fundamentals continue to show resilience despite external headwinds. These include a global economic slowdown — particularly in the US, which contracted by 0.5% in the first quarter of 2025 — and uncertainty over tariffs that may impact export momentum in the coming quarters.
“Continued uncertainty on the US tariff front may weigh on India's trade performance in the coming quarters. Slow credit growth and private investment appetite may restrict acceleration in economic momentum,” the report said.
The ministry noted that economic activity might appear stronger in constant prices than in nominal terms due to deflationary trends in the wholesale price index. “Measured in constant prices, economic activity may appear healthier than it is,” it said.
While the first quarter presented a favourable picture overall, the report flagged that credit growth has slowed, despite monetary easing and healthy bank balance sheets. The Reserve Bank of India has reduced the repo rate by 100 basis points since February.
“Despite monetary easing and a strong bank balance sheet, credit growth has slowed, reflecting cautious borrower sentiment and possibly risk-averse lender behaviour,” the report said. It added that “a growing preference for bond markets, particularly commercial papers among corporates due to lower borrowing costs, may also explain the shift.”
On the investment side, the report emphasised the importance of leveraging government schemes like the Employment Linked Incentive (ELI), which has a budget outlay of Rs 99,446 crore. The scheme aims to create more than 3.5 crore jobs over two years, with a particular focus on manufacturing.
“Piggybacking on initiatives like the Employment Linked Incentive (ELI) scheme, it is time for corporates to set the ball in motion,” the ministry said.
High-frequency indicators continue to signal broad-based year-on-year growth across sectors. While manufacturing and construction maintained their upward trajectory, the services sector remained the primary driver of overall economic growth in the April–June quarter.
Agriculture, too, is showing signs of improvement, helped by favourable monsoon progress, higher kharif sowing, adequate fertiliser supply and comfortable reservoir levels. These factors are expected to support rural incomes and boost consumption.
Despite global challenges, the ministry reiterated that India is well-positioned to remain among the fastest-growing major economies. Multiple agencies including S&P, ICRA, and the RBI’s Survey of Professional Forecasters have projected GDP growth for FY26 in the range of 6.2% to 6.5%.
"All that said, the economy has the look and feel of 'steady as she goes' as far as FY26 is concerned," the ministry said, summing up the outlook for the current fiscal, reported PTI.
Inflation remains within the Reserve Bank’s target range, and monsoon progress is on track, the review noted, adding that macroeconomic fundamentals continue to show resilience despite external headwinds. These include a global economic slowdown — particularly in the US, which contracted by 0.5% in the first quarter of 2025 — and uncertainty over tariffs that may impact export momentum in the coming quarters.
“Continued uncertainty on the US tariff front may weigh on India's trade performance in the coming quarters. Slow credit growth and private investment appetite may restrict acceleration in economic momentum,” the report said.
The ministry noted that economic activity might appear stronger in constant prices than in nominal terms due to deflationary trends in the wholesale price index. “Measured in constant prices, economic activity may appear healthier than it is,” it said.
While the first quarter presented a favourable picture overall, the report flagged that credit growth has slowed, despite monetary easing and healthy bank balance sheets. The Reserve Bank of India has reduced the repo rate by 100 basis points since February.
“Despite monetary easing and a strong bank balance sheet, credit growth has slowed, reflecting cautious borrower sentiment and possibly risk-averse lender behaviour,” the report said. It added that “a growing preference for bond markets, particularly commercial papers among corporates due to lower borrowing costs, may also explain the shift.”
On the investment side, the report emphasised the importance of leveraging government schemes like the Employment Linked Incentive (ELI), which has a budget outlay of Rs 99,446 crore. The scheme aims to create more than 3.5 crore jobs over two years, with a particular focus on manufacturing.
“Piggybacking on initiatives like the Employment Linked Incentive (ELI) scheme, it is time for corporates to set the ball in motion,” the ministry said.
High-frequency indicators continue to signal broad-based year-on-year growth across sectors. While manufacturing and construction maintained their upward trajectory, the services sector remained the primary driver of overall economic growth in the April–June quarter.
Agriculture, too, is showing signs of improvement, helped by favourable monsoon progress, higher kharif sowing, adequate fertiliser supply and comfortable reservoir levels. These factors are expected to support rural incomes and boost consumption.
Despite global challenges, the ministry reiterated that India is well-positioned to remain among the fastest-growing major economies. Multiple agencies including S&P, ICRA, and the RBI’s Survey of Professional Forecasters have projected GDP growth for FY26 in the range of 6.2% to 6.5%.
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