New Delhi: Indian economy has the look and feel of “steady as she goes” for the current fiscal, the finance ministry said on Monday even as it flagged slowing credit growth.
In its monthly economic review, the ministry said the first quarter of fiscal 2025-26 (FY26) presents a picture of resilient domestic supply and demand fundamentals.
With inflation remaining within the target range and monsoon progress on track, the domestic economy enters the second quarter of FY26 on a relatively firm footing.
While geopolitical tensions have not elevated further, the global slowdown, particularly in the US (which shrank by 0.5 per cent in Q1 2025), could dampen further demand for Indian exports.
“Continued uncertainty on the US tariff front may weigh on India’s trade performance in the coming quarters. Slow credit growth and private investment appetite may restrict acceleration in economic momentum,” it said.
Further, given the deflationary trend in the wholesale price index, one has to observe economic momentum in nominal quantities. Measured in constant prices, economic activity may appear healthier than it is, the review report said.
“All that said, the economy has the look and feel of ‘steady as she goes’ as far as FY26 is concerned,” it said.
The report noted despite monetary easing and a strong bank balance sheet, credit growth has slowed, reflecting cautious borrower sentiment and possibly risk-averse lender behaviour.
“A growing preference for bond markets, particularly commercial papers among corporates due to lower borrowing costs, may also explain the shift,” it said.
Piggybacking on initiatives like the Employment Linked Incentive (ELI) scheme, the ministry said it is time for corporates to set the ball in motion.
The Reserve Bank has cumulatively reduced the short-term lending rate (repo) by 100 basis points since February.
With an outlay of Rs 99,446 crore, the ELI scheme aims to incentivise the creation of more than 3.5 crore jobs in the country over a period of 2 years, with special focus on the manufacturing sector.
The report said that despite global headwinds marked by trade tensions, geopolitical volatility, and external uncertainties, India’s macroeconomic fundamentals have remained resilient.
Aided by robust domestic demand, fiscal prudence and monetary support, India appears poised to continue as one of the fastest-growing major economies, with various forecasters, including S&P, ICRA, and the RBI’s Survey of Professional Forecasters, projecting GDP growth rates for FY26 in the range of 6.2 per cent and 6.5 per cent, it said.
The report said high-frequency indicators reflected broad-based strength, registering strong year-on-year growth.
While the manufacturing and construction sectors continued to expand, the services sector anchored the overall economic growth in Q1 of FY26.
As of now, favourable progress in the southwest monsoon has bolstered agricultural activity, leading to higher kharif sowing compared to the previous year.
Adequate fertiliser availability and comfortable reservoir levels augur well for a healthy harvest outlook, providing fresh impetus to rural incomes and consumption, the ministry said.
