India’s Economic Fundamentals Offer Resilience Amid Global Uncertainty, Finance Ministry Says

India’s economy remains positioned to sustain growth despite geopolitical tensions, volatile energy prices and tighter global financial conditions, according to the Finance Ministry’s October 2026 Monthly Economic Review. The assessment points to strong domestic demand, industrial activity, services growth and credit expansion as key supports for the country’s economic outlook.

The report estimates that India’s real gross domestic product (GDP) grew by 7.35% in the second quarter of the 2026-27 financial year, following 7.8% growth in the April-June quarter. The estimate is based on the ministry’s nowcasting model, while the official GDP figures for the September quarter are scheduled for release on November 30.

The ministry said India’s economic fundamentals provide a strong foundation for managing external uncertainties and supporting sustainable long-term growth.

Domestic demand and industrial activity support growth

The review identifies domestic consumption, investment activity and structural reforms as important drivers of economic expansion during the remaining months of FY27.

Industrial activity has received support from firm production levels, improving order flows, better manufacturing sentiment and continued credit availability. Services activity has also remained resilient, helping sustain overall economic momentum.

The report noted that business activity moderated during July-September but showed signs of strengthening towards the end of the quarter. Improving Purchasing Managers’ Index readings and business sentiment were cited as indications of a cautiously favourable outlook.

Recent changes to Goods and Services Tax (GST) procedures are also expected to reduce compliance requirements and working-capital pressures for businesses. The ministry believes healthy credit growth and recent trade agreements could provide further support to consumption, investment and exports.

However, it emphasised that policy support must translate into higher production, greater domestic value addition and stronger export competitiveness.

Global risks remain a concern

Despite the positive domestic outlook, the report highlighted several challenges that could affect India's growth trajectory.

Persistent geopolitical tensions, uncertainty in international trade, volatile energy prices and tighter financial conditions in major economies remain significant risks. Disruptions to supply chains could increase production costs and complicate investment decisions for manufacturers.

Elevated crude oil prices are another concern because India depends heavily on imported energy. Higher international prices can increase the cost of imports and place pressure on domestic inflation and the country's external balances.

The ministry also warned that food-price pressures and uncertainty surrounding the kharif crop could influence inflation during the second half of FY27.

Safeguarding price stability is therefore expected to remain a major priority for policymakers.

Inflation management and monetary policy

The October review places considerable emphasis on controlling inflation while maintaining economic activity.

In October, the Reserve Bank of India’s Monetary Policy Committee increased the policy repo rate by 25 basis points to 5.5% and shifted its stance to calibrated tightening in response to evolving price pressures.

The RBI projected headline retail inflation could reach 6% in the third quarter of FY27 before easing to 5.7% in the final quarter.

The Finance Ministry said the effectiveness of the recent rate increase in controlling broader inflationary effects would depend partly on the central bank's liquidity management.

Government measures to address supply-side pressures are also expected to play a role in limiting temporary increases in essential commodity prices.

Rupee movement and foreign exchange reserves

The report acknowledged that the Indian rupee had depreciated against the US dollar and a broader basket of currencies. A weaker rupee can improve the price competitiveness of Indian exports, although the benefit depends on domestic inflation remaining controlled relative to trading partners.

India's real effective exchange rate declined by 9.1% during FY26, indicating an improvement in relative price competitiveness.

At the same time, the ministry said the country's foreign exchange reserves remained adequate by standard reserve measures, providing approximately 10.3 months of import cover. This buffer offers protection against external pressures and helps support confidence in India's ability to meet international payment obligations.

Outlook for the rest of FY27

The Finance Ministry expects domestic demand, investment, industrial activity and structural reforms to continue supporting economic growth. Nevertheless, it has cautioned that external developments and inflationary pressures require close monitoring.

The latest assessment presents an economy supported by strong internal activity but operating in an uncertain international environment. Sustaining growth will depend not only on maintaining demand but also on improving productivity, expanding manufacturing capacity and strengthening export performance.

India's economic outlook therefore combines encouraging growth estimates with clear policy challenges, particularly around inflation, energy costs, currency stability and global financial conditions.