India's growth outlook for the current fiscal year remains strong, supported by domestic demand, a favourable monsoon, lower inflation and the recently introduced GST rate cuts, the Finance Ministry said in its September economic report.
Amidst this uncertain global outlook, India’s economy continues to gain momentum, said the report. Demand conditions across rural and urban India strengthened with the implementation of the GST reforms and the festive season, coinciding with industry reports signalling robust growth in sales, particularly in sectors such as automobiles, it said.
On the supply side, the manufacturing and services sectors expanded "healthily". Taking into account the higher-than-anticipated growth in Q1 FY26 and steady upward trends visible in Q2 FY26, India’s growth forecasts for FY26 have been upgraded, said the government.
The IMF now forecasts real GDP growth of 6.6 per cent, while the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) expects real GDP to increase by 6.8 per cent, indicating upward revisions of 20 and 30 basis points, respectively.
"Inflation has remained well under control, supported by deflation in food categories. Continued deflation in the food category has led to a slowdown in retail headline inflation to 1.54 per cent in September 2025, resulting in a retail headline inflation rate of 1.7 per cent in Q2 FY26."
The prices of non-food and non-fuel items remained stable, with core inflation coming in at 4.6 per cent in September 2025. "Barring shocks stemming from adverse weather events and supply chain disruptions, price stability is expected to prevail," the ministry said.
The RBI forecasts inflation at 1.8 per cent in Q3 FY26 and anticipates an uptick in Q4 FY26 and Q1 FY27 as base effects fade.
RBI’s efforts to maintain adequate liquidity within the banking system have played a crucial role in ensuring the availability of resources for strengthening economic activities, as per the report. Further, "the transmission mechanism in both money and credit markets continues to operate smoothly, reflecting the effectiveness of these measures. The RBI's recent regulatory and development policy reflects a calibrated response to the evolving macroeconomic conditions, combining prudence with comprehensive structural reforms."
These measures are aimed at "strengthening the banking sector, improving credit flow, promoting ease of doing business, simplifying foreign exchange management, and internationalising the Indian Rupee."
Resilient trade activity
In terms of external trade, India’s external economic activity has remained "resilient" with a steady trade performance in H1 FY26, amidst the dynamic global trade landscape. The country’s total exports (goods & services) have registered a growth of 4.4 per cent YoY in H1 FY26, reaching USD 413.3 billion. While merchandise exports have grown by 3 per cent (YoY), services exports grew by 6.1 per cent (YoY). During the same period, core merchandise exports continued to grow strongly by 7.5 per cent (YoY).
The government has been focused on making the Indian economy resilient to external vulnerabilities through structural reforms, it said.
Amidst this uncertain global outlook, India’s economy continues to gain momentum, said the report. Demand conditions across rural and urban India strengthened with the implementation of the GST reforms and the festive season, coinciding with industry reports signalling robust growth in sales, particularly in sectors such as automobiles, it said.
On the supply side, the manufacturing and services sectors expanded "healthily". Taking into account the higher-than-anticipated growth in Q1 FY26 and steady upward trends visible in Q2 FY26, India’s growth forecasts for FY26 have been upgraded, said the government.
The IMF now forecasts real GDP growth of 6.6 per cent, while the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) expects real GDP to increase by 6.8 per cent, indicating upward revisions of 20 and 30 basis points, respectively.
"Inflation has remained well under control, supported by deflation in food categories. Continued deflation in the food category has led to a slowdown in retail headline inflation to 1.54 per cent in September 2025, resulting in a retail headline inflation rate of 1.7 per cent in Q2 FY26."
The prices of non-food and non-fuel items remained stable, with core inflation coming in at 4.6 per cent in September 2025. "Barring shocks stemming from adverse weather events and supply chain disruptions, price stability is expected to prevail," the ministry said.
The RBI forecasts inflation at 1.8 per cent in Q3 FY26 and anticipates an uptick in Q4 FY26 and Q1 FY27 as base effects fade.
RBI’s efforts to maintain adequate liquidity within the banking system have played a crucial role in ensuring the availability of resources for strengthening economic activities, as per the report. Further, "the transmission mechanism in both money and credit markets continues to operate smoothly, reflecting the effectiveness of these measures. The RBI's recent regulatory and development policy reflects a calibrated response to the evolving macroeconomic conditions, combining prudence with comprehensive structural reforms."
These measures are aimed at "strengthening the banking sector, improving credit flow, promoting ease of doing business, simplifying foreign exchange management, and internationalising the Indian Rupee."
Resilient trade activity
In terms of external trade, India’s external economic activity has remained "resilient" with a steady trade performance in H1 FY26, amidst the dynamic global trade landscape. The country’s total exports (goods & services) have registered a growth of 4.4 per cent YoY in H1 FY26, reaching USD 413.3 billion. While merchandise exports have grown by 3 per cent (YoY), services exports grew by 6.1 per cent (YoY). During the same period, core merchandise exports continued to grow strongly by 7.5 per cent (YoY).
The government has been focused on making the Indian economy resilient to external vulnerabilities through structural reforms, it said.
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