Despite rising uncertainty in the global landscape, the Indian economy has started the 2026-27 fiscal year from a position of strength. According to the Finance Ministry’s Monthly Economic Review for September, the momentum of economic growth has been sustained into the second quarter, although the pace may moderate slightly.
The review states that, based on current projections presented in the Ministry’s Economic Survey, the real Gross Domestic Product (GDP) growth rate for the second quarter of the 2026-27 fiscal year is estimated at 7.3 percent.
Ongoing conflict in West Asia has impacted energy markets and trade routes, intensifying challenges for economies worldwide. Despite this, India’s real GDP growth stood at 7.8 percent in the first quarter of the 2026-27 fiscal year—the highest first-quarter growth rate recorded in the current series.
The Ministry noted that economic expansion has been broad-based, with strength observed in the manufacturing, construction, and services sectors. Domestic demand continued to support the economy, while investment emerged as a key driver of growth; the investment rate also reached its highest level in the current series.
Timely government measures to ensure energy supplies and the availability of essential raw materials, combined with the limited pass-through of global energy prices to domestic fuel costs, helped mitigate the impact of external shocks on domestic economic activity.
However, the pace of growth has moderated across certain indicators. Growth in e-way bills and the manufacturing PMI has softened. Conversely, services sector activity improved in August, bolstered by gains in new business and employment. Electricity and fuel consumption continued to show healthy growth, while the expansion of bank credit remained robust.
Manufacturing Sector Emerges as a Key Economic Pillar
The industrial sector delivered a strong performance in the first quarter of the 2026-27 fiscal year. The industrial sector’s Gross Value Added (GVA) grew by 7.7 percent in real terms. The manufacturing sector was a key contributor to this, recording a growth of 9.2 percent.
Recent data also points to a continued expansion of industrial activities, although the pace of growth has moderated slightly. In July, the Index of Industrial Production (IIP) rose by 6.7 percent year-on-year. Meanwhile, the index of eight core industries grew by 4.8 percent, and the manufacturing PMI stood at 52.8 in August.
Bank credit to the industrial sector also picked up in July. Credit growth was broad-based across companies of various sizes. The impact of recent policy measures aimed at boosting domestic production capacity in sectors like electronics and semiconductors is also becoming evident.
Pressure from Oil and Weather on Inflation
Renewed pressure in the global oil market and weather-related volatility have increased price pressures at the retail, wholesale, and producer levels. However, according to the ministry, the overall inflation situation remains under control.
Inflation for 69 percent of the items in the inflation basket remains below the 4 percent target. The ministry stated that this indicates that broad-based inflationary pressure remains limited.
Strength in Exports
The ministry’s review also highlights robust growth in India’s exports. According to the review, the total value of exports in the first five months of the fiscal year stood at approximately $400 billion. If the current pace is maintained, India’s total exports for the entire fiscal year could approach the $1 trillion mark.
The review noted that this is a strong indication that India’s trade agreements are helping to boost exports.
