India’s economy continues to show signs of resilience despite global headwinds, supported by robust domestic demand, healthy monsoons, and fiscal prudence, according to the finance ministry’s latest report.
“The Indian economy in mid-2025 presents a picture of cautious optimism. Despite global headwinds marked by trade tensions, geopolitical volatility, and external uncertainties, India’s macroeconomic fundamentals have remained resilient. Aided by robust domestic demand, fiscal prudence and monetary support, India appears poised to continue as one of the fastest-growing major economies, with various forecasters, including S&P, ICRA, and the RBI’s Survey of Professional Forecasters, projecting GDP growth rates for FY26 in the range of 6.2 per cent and 6.5 per cent,” the finance ministry said in its ‘Monthly Economic Review June 2025’ released on Monday, July 28.
India’s economic activity in Q1 FY26 was underpinned by strong domestic demand, robust services growth, and encouraging signs from manufacturing and agriculture, it added.
Agriculture and Rural Sentiment on the Upswing
The review highlights encouraging developments in agriculture, thanks to a favourable monsoon. “Agricultural activity received a significant lift from a favourable southwest monsoon, which arrived early and has so far delivered above-normal rainfall,” it said.
This, along with sufficient fertiliser availability and healthy reservoir levels, is expected to result in a strong kharif harvest. Citing NABARD’s rural sentiment survey, the ministry noted, “Over 74.7 per cent of rural households expect income growth in the coming year, the highest since the survey’s inception.”
Inflation Offers Room for Policy Support
The report said the inflation outlook remains benign, giving policymakers some breathing room. “Core inflation remains subdued, and overall inflation is comfortably below the RBI’s 4 per cent target, affording room for the easing cycle to be sustained,” the ministry said.
The Reserve Bank of India has projected headline inflation at 3.4% for Q2 FY26. The report further adds, “It appears likely that the full fiscal year inflation rate would undershoot the central bank’s expectation of 3.7 per cent.”
The moderation is partly linked to global oil price trends. “Global crude oil prices are expected to remain subdued, following a larger-than-anticipated production hike by OPEC and its allies,” the ministry noted, adding that the increase amounted to 548,000 barrels per day in August.
Fiscal and Monetary Support Continue
The report highlighted a growth-oriented yet disciplined approach to public finances. “The revenue sources remain buoyant despite the tax cuts, continuing on the double-digit growth path,” the ministry said.
However, on the credit front, the situation appears mixed. “Despite monetary easing and a strong bank balance sheet, credit growth has slowed,” it said, attributing the drag to “cautious borrower sentiment and possibly risk-averse lender behaviour.”
Risks Linger, Even as Growth Path Holds
While the outlook for FY26 is broadly positive, the review does not overlook risks. “The global slowdown, particularly in the US (which shrank by 0.5 per cent in Q1 2025), could dampen further demand for Indian exports,” it warned.
The ministry also cautioned against over-relying on real GDP estimates in light of wholesale deflation. “Given the deflationary trend in the wholesale price index, one has to observe economic momentum in nominal quantities.”
Summing up the outlook, the ministry said: “All that said, the economy has the look and feel of ‘steady as she goes’ as far as FY26 is concerned.”
Looking ahead, the report pointed to global supply chain shifts — especially in semiconductors, rare earths, and magnets — as a strategic opportunity. “In the medium term, given the ongoing momentous shifts in global supply chains… India has its task cut out,” the ministry concluded.
