India’s economy has entered the second quarter of FY26 with resilient domestic supply and demand fundamentals, according to the Finance Ministry’s Monthly Economic Review for June 2025. The report describes the current fiscal outlook as “steady as she goes,” supported by stable inflation within the target range and favourable monsoon progress.
Macroeconomic indicators reflect robust domestic demand, fiscal discipline and supportive monetary conditions. India is expected to remain among the fastest-growing major economies, with GDP growth projections for FY26 ranging between 6.2% and 6.5%, as estimated by S&P, ICRA and the RBI’s Survey of Professional Forecasters.
Financial markets have shown notable resilience, driven by strong domestic investor participation and a healthy banking sector. Scheduled commercial banks have strengthened their capital and liquidity positions while improving asset quality. The Gross Non-Performing Assets ratio stands at a multi-decade low of 2.3%, and the Net NPA ratio is at 0.5%, supported by strong earnings.
Economic activity in Q1 FY26 was buoyed by robust services growth, encouraging trends in manufacturing and agriculture, and strong domestic consumption. The agriculture sector benefited from an early and above-normal southwest monsoon, adequate fertiliser availability and healthy reservoir levels, indicating a promising kharif season. This is expected to boost rural income and demand. NABARD’s rural sentiment survey revealed that 74.7% of rural households anticipate income growth in the coming year, the highest since the survey began.
Despite the domestic strength, the report notes cautious optimism due to external challenges. The global slowdown, particularly in the United States where GDP contracted by 0.5% in Q1 2025, may dampen demand for Indian exports. Uncertainty surrounding US tariffs could further impact trade performance. Additionally, slow credit growth and tepid private investment may limit acceleration in economic momentum.
In the medium term, India faces strategic challenges and opportunities amid global supply chain shifts in semiconductor chips, rare earths and magnets. The report underscores the need for focused efforts to position India effectively within these evolving global dynamics.
