New Delhi [India], October 1 (ANI): India’s economy is expected to grow by 7.3 per cent in the second quarter of FY27, supported by resilient domestic demand and investment, but higher oil prices, tightening global financial conditions and trade uncertainty pose challenges to sustaining momentum, the Ministry of Finance said in its Monthly Economic Review for September 2026.
The review said the economy entered the second quarter from a position of strength after recording 7.8 per cent growth in the first quarter, the highest first-quarter growth in the current series. However, it cautioned that India cannot take its growth performance for granted as geopolitical polarisation and disruptions across global supply chains intensify.
“Our nowcasting measure, unveiled in the Economic Survey earlier this year, anticipates a real GDP growth rate of 7.3 per cent in the fiscal second quarter,” the review said.
High-frequency indicators suggest that growth has continued into the second quarter, although at a more measured pace. E-way bill generation and manufacturing activity have moderated, while services activity strengthened in August, supported by new business and employment.
Healthy growth in electricity and fuel consumption, sustained bank credit expansion and stronger production of capital and infrastructure goods point to continued investment momentum. Automobile sales across rural and urban markets also indicate broad-based consumption demand, the ministry said.
The investment rate reached its highest level in the current series in the first quarter. Manufacturing grew by 9.2 per cent, while services expanded by 10 per cent, underscoring the breadth of the economic expansion.
The review also outlined a strong export outlook, with total merchandise and services exports rising by 15.5 per cent year-on-year to USD 399.3 billion during April-August FY27.
“At the current run rate of nearly USD 400 billion in the first five months of the year, India’s overall export value for the full financial year could approach a trillion US dollar,” it said.
The ministry linked this momentum to India’s trade agreements and said further agreements could provide additional support. In August, merchandise exports grew by 26.1 per cent, while the services trade surplus offset 65 per cent of the merchandise trade deficit.
Foreign exchange reserves of USD 765.9 billion as of September 18 provide a substantial buffer against external vulnerabilities. The review also indicated that net foreign direct investment inflows could improve this financial year compared with the previous year.
However, rising interest rates in developed economies could slow cross-border capital flows by encouraging investors to retain funds in their home markets. Competition for investment is also intensifying as countries seek capital for artificial intelligence infrastructure and renewed manufacturing capacity.
Uncertainty surrounding trade relations with the United States, tariff pressures and crude oil prices continues to weigh on investor sentiment towards India, the ministry said.
Inflation presents another risk to the outlook. Retail inflation rose to 4.82 per cent in August, while elevated energy prices, weather-related disruptions, festive demand and higher input costs could add near-term pressure.
Reservoir storage and largely stable groundwater conditions support agriculture, although the distribution of rainfall and potential El Niño-related risks to the upcoming rabi crop require monitoring.
To sustain growth and attract investment, the review emphasised consistent and timely policymaking, stronger governance and greater competition.
“Only a competitive economy will become a successful, innovative, and manufacturing economy. Improved governance and enhanced state capacity at all levels of the government hold the key to a competitive Indian economy,” it said. (ANI)
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