New Delhi: The Union Finance Ministry recently stated that India’s macroeconomic fundamentals have remained strong and the country’s economy is expected to continue on a stable path in the current financial year.
It also affirmed that the Indian economy was gaining momentum with easing inflation, strong domestic demand and export surge in the first quarter of FY26.
The Ministry highlighted the deflationary trend in the Wholesale Price Index (WPI) and emphasised the importance of observing economic momentum in nominal quantities. It also mentioned that when measured in constant prices, economic activity may appear healthier than it is.
The review for June 2025 noted that the first quarter of FY26 showed resilient domestic supply and demand fundamentals. Inflation has remained within the target range, and the progress of the monsoon has been on track, contributing to a relatively firm footing for the domestic economy as it enters the second quarter of the financial year.
India’s economy continued its growth trajectory in the first quarter of FY26, driven by strong domestic demand, resilient business and services sectors, and a favourable start to the southwest monsoon.
High-frequency indicators showed robust year-on-year growth across various sectors, with manufacturing and construction expanding while the services sector played a key role in driving overall economic growth.
Rural economy and growth
The progress of the southwest monsoon has boosted agricultural activity, leading to increased kharif sowing compared to the previous year. Adequate fertilizer availability and healthy reservoir levels augur well for a successful harvest, which is expected to support rural incomes and consumption.
The Rural Economic Conditions and Sentiments Survey (RECSS) by NABARD for July 2025 revealed that 76.6 percent of rural households reported increased consumption, while 39.6 percent saw higher incomes in the past year.
Rural inflation dropped to 1.72 percent in June 2025, a significant decrease from the previous year, signalling effective supply-side policies and job creation efforts.
The agriculture sector has played a key role in maintaining price stability, with significant increases in rice and wheat production. Various measures such as the Open Market Sale Scheme, import and export facilitation, stock limits, and income tax exemptions have helped in controlling inflation.
Inflation and Banking
Inflationary pressures eased in Q1 of FY26, with CPI inflation dropping to a 77-month low of 2.1 percent in June 2025, mainly due to lower food prices. Wholesale price inflation also turned negative at -0.1 percent, providing relief on the cost front.
The Reserve Bank of India’s decision to reduce the repo rate has further supported growth while keeping inflation in check. On the trade front, India’s exports in the first quarter of FY 2025-26 showed a healthy increase, with services exports particularly strong.
Trade
Key sectors such as electronics, tea, jute, meat, dairy, and poultry have seen growth, aided by initiatives such as Make in India and Aatmanirbharta in pulses.
Overall, India’s total exports have reached a record high in FY 2024-25.
Despite global trade challenges, India’s trade performance remained strong in Q1 of FY26, with total exports and core merchandise. Foreign exchange reserves remained healthy, providing a comfortable import cover of over 11 months.
The exchange rate has remained stable, with the rupee showing low volatility.
In the first quarter of FY 2025-26, India’s exports reached US$210.31 billion, a 5.94 percent increase from the previous year. Imports also grew by 4.38 percent, reducing the trade deficit by 9.4 percent to US$20.31 billion.
Services exports rose by 10.93 percent to US$98.13 billion, with key growth sectors including electronic goods, tea, jute manufacturing, meat, dairy, poultry, and other cereals.
Financial sector
India’s financial markets have shown remarkable resilience, largely due to active participation from domestic investors. This resilience is supported by the strong condition of the banking sector, with banks enhancing their capital and liquidity reserves and enhancing asset quality.
As a result of these enhancements, the Gross Non-Performing Asset (GNPA) ratio and Net Non-Performing Asset (NNPA) ratio of scheduled commercial banks are at a multi-decadal low of 2.3 percent and 0.5 percent, respectively, alongside robust earnings.
Labour market
The report stated that the labour market has been stable, with a significant increase in white-collar hiring showing a strong recovery with a double-digit year-over-year growth.
The PMI’s employment sub-indices show consistent and strong job growth, staying in the expansionary range for the 16th month in a row. Additionally, formal job creation is increasing, as evidenced by the Employee Provident Fund Organisation reporting a record high net member addition in May 2025.
Make In India, FTP, PLI, MSMEs and others
The Make in India initiative has boosted electronics exports, while the Mission for Aatmanirbharta in Pulses has reduced pulse imports. India’s total exports in FY 2024-25 hit a record US$824.9 billion, a 6.01 percent increase from the previous year.
The government initiatives, such as the Foreign Trade Policy (FTP) 2023, RoDTEP and RoSCTL schemes, and the Districts as Export Hubs programme, are boosting economic momentum by enhancing export competitiveness.
Infrastructure development under the National Logistics Policy and PM Gati Shakti, along with increased budget allocations for Production-Linked Incentive (PLI) schemes in sectors such as electronics, automobiles, and textiles, is strengthening domestic manufacturing.
The Bharat Mart in Dubai is helping MSMEs access global markets, while compliance reforms and the National Single Window System are simplifying business operations.
The Ministry of MSME’s 65 Export Facilitation Centres are also aiding small businesses in increasing exports. India’s real GDP grew by 6.5 percent in 2024-25, with the Reserve Bank of India projecting similar growth for 2025-26. India is on track to becoming the world’s third-largest economy by 2030, driven by strong domestic demand, a young workforce, and sustained reforms.
In the first quarter of FY26, the domestic supply and demand fundamentals have shown resilience. Inflation has stayed within the target range, and the progress of the monsoon is on schedule.
As a result, the domestic economy is starting the second quarter of FY26 on a solid foundation, according to the report.
Conclusion
The domestic supply and demand factors have remained strong in the initial three months of fiscal year 2026.The monsoon’s advancement aligns with expectations, and inflation figures are stable within the set parameters.
Consequently, the national economy is beginning the second fiscal quarter of FY26 with strong economic fundamentals.
The combination of easing inflation, surge in exports, and strategic government policies shows India’s growing economic resilience and global trade prominence.