Indian Economy Starts FY27 on Firm Footing, Growth Momentum Extends Into Q2: FinMin

The ministry's latest nowcasting estimate projects real GDP growth at 7.3 per cent in the second quarter of FY27, following 7.8 per cent growth recorded in the first quarter. The Q1 expansion was the strongest first-quarter performance in the current GDP series.

The Finance Ministry said growth in the first quarter was broad-based, with manufacturing, construction and services all registering gains. Domestic demand remained supportive, while investment emerged as an increasingly important contributor, with the investment rate reaching its highest level in the current series.

The review noted that the conflict in West Asia had disrupted energy markets and trade routes, adding to global economic uncertainty. However, government measures aimed at securing energy supplies and critical inputs, along with limited transmission of international energy price increases to domestic fuel prices, helped shield economic activity from the external shock.

High-frequency indicators point to continued expansion in the second quarter, although some indicators have moderated. E-way bill generation and manufacturing activity have grown at a slower pace, while services activity strengthened in August on the back of improved new business and employment. Electricity and fuel consumption continued to show healthy growth, while bank credit maintained its strong expansion.

The industrial sector remained resilient in the first quarter, with real Gross Value Added (GVA) in industry growing 7.7 per cent year-on-year. Manufacturing was the key contributor, recording 9.2 per cent growth.

More recent data also indicated continued industrial expansion. The Index of Industrial Production (IIP) grew 6.7 per cent year-on-year in July, while the Index of Core Industries increased 4.8 per cent. The Manufacturing Purchasing Managers' Index (PMI) stood at 52.8 in August.

Bank credit to industry also accelerated in July, with growth spread across businesses of different sizes. The ministry said sector-specific indicators remained supportive, while policy measures were helping strengthen domestic capabilities in areas such as electronics and semiconductor manufacturing.

On inflation, the review said price pressures had increased across retail, wholesale and producer levels amid renewed volatility in global oil markets and weather-related disruptions. Despite these pressures, the overall inflation environment remained largely anchored, with 69 per cent of items in the consumption basket recording inflation below the 4 per cent target.

The Finance Ministry also highlighted the performance of India's external trade. “At the current run rate of nearly USD 400 billion in the first five months of the year, India’s overall export value for the full financial year could approach a trillion US dollar. That is a very strong confirmation that India’s trade agreements are providing impetus to India’s exports,” the review said.