Amid an uncertain global trade and policy environment, India’s economy gained renewed momentum in the second quarter of FY26, according to the Finance Ministry’s monthly report released on Monday. The report noted that this growth is particularly encouraging given the United States’ decision to impose higher tariffs on Indian goods in August, a move that could have otherwise dampened trade sentiment.
High-frequency supply-side indicators pointed to sustained growth, while consumer demand continued to improve, spurred by GST reforms and buoyant festive season activity. The Ministry’s report emphasized that India’s outlook for FY26 remains optimistic, supported by strong domestic demand, favorable monsoon patterns, moderating inflation, and continued monetary easing. Reflecting this confidence, both the IMF and the Reserve Bank of India revised India’s growth forecasts upward—from 6.4% and 6.5% to 6.6% and 6.8%, respectively.
The lower GST rate, the report explained, is expected to bolster demand by easing the tax burden on consumers and businesses, thereby encouraging investment, consumption, and job creation. Strong showings in industrial output and the services sector, combined with a resilient labor market, are further supporting economic expansion.
Despite ongoing trade negotiations with Washington, India’s trade performance remains robust. Growing services exports continue to balance the merchandise trade deficit, while recent data shows early signs of export diversification. The report also highlighted a rise in gross FDI inflows, underscoring India’s appeal as a favorable destination for global investors.
On the monetary side, the RBI’s Monetary Policy Committee kept the repo rate unchanged at 5.5% with a neutral stance. Headline inflation for FY26 was revised down to 2.6%, from 3.7% in June and 3.1% in August. Inflation is expected to stay soft throughout FY26, though a mild uptick is anticipated in late Q4 and early FY27.
Agricultural indicators remain largely positive, with successful kharif sowing and healthy growth in cereals and pulses, despite weather-related challenges in oilseeds and cash crops. This stability is expected to support rural income and food supply.
The report also noted a steady flow of financial resources to the commercial sector, even with slower bank credit growth, as non-bank funding gains prominence. Implementation of the RBI’s new developmental policies is expected to strengthen credit efficiency and banking resilience.
While global headwinds continue to pose risks, India’s structural reforms—especially the rollout of GST 2.0—are projected to sustain growth and help the nation navigate external challenges effectively.
