The first quarter of FY26 presents a picture of resilient domestic supply and demand fundamentals. With inflation remaining within the target range and the monsoon progressing on track, the domestic economy enters the second quarter of FY26 on a relatively firm footing, according to the Finance Ministry’s Monthly Economic Review for June 2025, released on Monday. The report adds that the economy gives the impression of being “steady as she goes” for the current fiscal year (FY26).
India’s macroeconomic fundamentals have remained strong. Supported by robust domestic demand, fiscal prudence, and accommodative monetary policy, the country appears poised to continue as one of the fastest-growing major economies. The report highlights projections by various forecasters-including S&P, ICRA, and the RBI’s Survey of Professional Forecasters-estimating GDP growth for FY26 in the range of 6.2 to 6.5 per cent.
India’s financial markets have shown notable resilience, primarily driven by strong domestic investor participation. This stability is further reinforced by the sound health of the banking sector, with banks having strengthened their capital and liquidity buffers while improving asset quality.
“Reflecting these improvements, the Gross Non-Performing Assets (GNPA) ratio and the Net Non-Performing Assets (NNPA) ratio of scheduled commercial banks have declined to multi-decade lows of 2.3 per cent and 0.5 per cent, respectively, supported by strong earnings,” the report stated.
Economic activity in Q1 FY26 was driven by strong domestic demand, robust services growth, and encouraging trends in both manufacturing and agriculture.
Agricultural activity received a significant boost from a favourable southwest monsoon, which arrived early and has so far delivered above-normal rainfall. Fertiliser availability and reservoir levels are more than adequate, indicating a positive outlook for kharif sowing and harvest, as well as rural income and demand.
“The agriculture sector’s steady performance continues to act as a stabilising force for the broader economy and supports the rural outlook. According to NABARD’s rural sentiment survey, over 74.7 per cent of rural households expect income growth in the coming year- the highest since the survey began,” the Economic Review noted.
The report further stated that the Indian economy in mid-2025 reflects a picture of cautious optimism.
Although geopolitical tensions have not worsened, the global slowdown-especially the 0.5 per cent contraction of the US economy in Q1 2025-could weaken demand for Indian exports. Continued uncertainty around US tariffs may also affect India’s trade performance in the coming quarters. In addition, slow credit growth and limited private investment appetite may restrict a faster economic acceleration.
“In the medium term, amid ongoing structural shifts in global supply chains-particularly in semiconductor chips, rare earths, and magnets-India has its work cut out,” the report concluded.
– IANS
