India’s economic outlook is cautiously optimistic amid global uncertainty. The growth momentum seen in the third quarter of FY25 has strengthened further into Q4 and early FY26.
(Source: freepik)
India is in a “Goldilocks situation” of economic stability, which means the macroeconomic health is just right due to strong growth and moderate inflation amidst global uncertainty and turbulence.
According to the Ministry of Finance’s monthly economic review for May 2025, released on June 28 by the Department of Economic Affairs, the Indian economy has entered FY26 strongly, however, the global economic outlook remains uncertain, affected by policy changes, geopolitical conflicts, and ongoing vulnerabilities. As a result, global growth in FY26 is expected to stay subdued.
The review noted: These may be nervous but exciting times for the Indian economy. Geopolitics may offer us opportunities that appeared remote previously. It is up to us to be flexible enough to ride the tide.
“...with no major imbalances in the macro aggregates, a subdued inflation rate combined with a growth-supportive monetary policy stance, India’s macroeconomic health is in a relative goldilocks situation,” reported the review.
Vivek Kumar, Economist, QuantEco Research shares the risk to India's economic growth in FY26, “...stems primarily from adverse geoeconomic and geopolitical developments. Having said that, the emergence of domestic mitigants would offset this risk partially. The lagged impact of the ongoing monetary and credit easing, a seasonal kicker from a surplus monsoon, and a one-time income tax relief provided in the FY26 Union Budget should help revive domestic consumption and investments.”
As per the Finance Ministry review, the real GDP growth rate of 7.2% for FY25 has been driven by robust private consumption, healthy investment activity, and strong performance in the services and construction sectors. Also, the key infrastructure industries, such as cement and steel, experienced double-digit growth in April 2025, indicating ongoing capital formation.
In the fourth quarter of FY25, the growth momentum remained strong, with real GDP expanding by 7.4% year-over-year in Q4, up from 6.4% in Q3. This confirms India's position as the world's fastest-growing major economy.
The report indicates the supply side saw significant growth, with construction increasing by about 11%, services rising by 7%, industry growing by 6%, and agriculture climbing by 5% as part of the recovery.
On the demand side, growth was driven by strong private consumption, stable investment activity, and an increase in net exports. “The growth was supported by robust private consumption demand, stable investment activity, and increased net exports,” the report noted.
Exports held steady at 21.4% of GDP. Additionally, a decrease in import intensity—from 23.7% to 21.8%—can be linked to lower global commodity prices, especially crude oil.
Corporate performance, on the other hand, is showing positive signs, as the net sales for Nifty 500 companies are rising by 5.7% year-over-year, and profit after tax (PAT) is increasing by 9%. As per the review, the margin expansion reached multi-quarter highs due to improved cost efficiencies.
Earnings momentum could see volatility from tariff-related uncertainty and exposure to geopolitically unstable countries, warned Kumar. “However, domestic-oriented companies should see the sustenance of earnings momentum. Soft international commodity prices will act as a collateral benefit from the anticipated global slowdown - this should help in boosting value add and margins,” he added.
Early FY26 signals positive momentum
India is showing resilience despite these challenges, supported by policy stability, decreasing inflation, a stable job market, and a robust external sector. Amid global uncertainties, the outlook for India remains one of cautious optimism.
E-way bill generation hit a new peak in May, reaching 122.7 million—an all-time high, indicating strong domestic trade activity. Each year, these bills continue to grow in double digits, showing sustained momentum in logistics and goods movement.
Meanwhile, fuel consumption for both diesel and petrol has hit record highs, reflecting strong demand from industry, transport, and agriculture, especially with increased irrigation during summer.
In manufacturing, the Purchasing Managers’ Index (PMI) stayed well above long-term averages in May. Although there was a slight slowdown in output and new orders compared to April, the sector continues to benefit from healthy demand.
Notably, healthy demand conditions continue to support sales and production. Furthermore, new export orders rose at one of the strongest rates recorded in three years. Construction activity was steady with moderate growth. Steel consumption increased by 7% during April and May 2025, while cement output grew by 6.7% in April.
The services sector remained strong, with the Services PMI recording a solid 58.8 in May, slightly up from April’s 58.7.
“Strong international demand, as evidenced by the near record improvement in the new export business index, continued to fuel services activity,” the review reported.
Logistics performance also improved, with air cargo volume experiencing strong double-digit growth in April 2025, achieving the highest growth rate in the last five months. While port traffic increased by 4.4% year-over-year in May, driven by higher container, petroleum, and miscellaneous cargo volumes.
The hospitality and travel sectors also experienced healthy expansion. Hotel occupancy reached 67% in April 2025, five percentage points higher than the previous year. Domestic air travel grew by 9.7% in May, supported by seasonal travel and urban mobility.
However, passenger vehicle sales remained subdued, especially in entry-level segments, indicating some consumer caution, as noted by the Federation of Automobile Dealers Association. Rural demand remains a bright spot, with tractor sales up 9.1% year-over-year in May, and two-wheeler sales increasing by 7.3%.
Overall, these indicators suggest India’s economy is on solid footing in the early months of FY26, driven by healthy rural demand, infrastructure activity, and exports, even as consumer sentiment varies across sectors.
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