India’s economic momentum firm despite grim global outlook; GDP growth of 7.35% likely in Q2: Finance Ministry

The Union finance ministry today said that India’s growth momentum has remained firm despite the grim outlook for global growth in the wake of the elevated borrowings by countries, leading to rising bond yields and inflation. The ministry said India weathered the Middle East crisis better than expected in Q2FY26 and the economy may grow at 7.35% in the quarter.

“The global economy weathered the conflict in the Middle East better than expected in Q2 2026. However, higher energy prices renewed inflationary pressures and prompted monetary tightening in several major economies. Meanwhile, bond yields rose world over to multi-decade highs amid concerns over fiscal sustainability, higher government borrowing and inflation risks,” the ministry said in the monthly economic review for October.  

“Taking these developments into account, the IMF’s October 2026 World Economic Outlook projects global growth to slow to 3.1% in 2026, with risks tilted to the downside.  India’s growth momentum, by comparison, has held firm. High-frequency indicators spanning industrial output, energy consumption, port traffic, GST collections, and automobile sales recorded stronger growth in Q2FY27 than in the previous quarter,” it added.  

How did the economy fare in Q2?

The ministry said that building on growth of 7.8% in Q1, the department of economic affairs’ nowcasting model estimates real GDP growth at 7.35% in Q2FY27.

“Reflecting these favourable domestic trends, the IMF has raised its FY27 growth forecast for India to 7.0%, while the World Bank, the OECD and the RBI project growth at 7.1%,” it added.  

The ministry said industrial activity remained robust in during the period led by manufacturing. “Industrial activity remained firm, with the Index of Industrial Production (IIP) expanding by 8.0% year-on-year in August 2026, led by 9.0% growth in Manufacturing. The Index of Core Industries (ICI) grew by 7.9% YoY in September 2026,” it said.  

“The HSBC India Manufacturing PMI strengthened to 55.1 in September from 52.8 in August, indicating a faster expansion in manufacturing activity. The latest Annual Survey of Industries (ASI) 2024-25, for which fieldwork was carried out during October 2025–June 2026, points to broad-based expansion in the registered manufacturing sector,” the report pointed out.

The report pointed out that headline retail inflation (CPI) accelerated by 71 basis points to 5.54% in September but a majority of the items in the CPI basket (64%) continue to record inflation well below the 4% target.

“For Q2FY27, CPI inflation averaged 4.94%, which is aligned with the RBI’s forecast for the period. As inflationary pressures persist, the RBI has hiked the repo rate by 25 basis points and changed its stance from neutral to calibrated tightening,” it said.