India can't take growth for granted, FinMin warns as global rates rise and investors turn cautious
India's economy exhibited robust growth of 7.8 percent in the first quarter of FY27 and is projected to grow 7.3 percent in the next quarter. While domestic conditions appear resilient, external risks continue to challenge its investment appeal, particularly regarding trade relations with the United States and fluctuations in energy prices. The recent sovereign rating upgrade reflects…
India's economy enters the second quarter of FY27 with strength, but the Finance Ministry's Monthly Economic Review for September 2026 warns against taking growth for granted. The report highlights the need for India's resilience to be continuously earned, as global risks and cautious investor sentiment present challenges. Despite these concerns, the Review expects India's intrinsic growth potential to be recognized in time.
The Review cites a sovereign rating upgrade by Japan Credit Rating Agency as evidence of improving fundamentals, and points to strong early signals of activity in Q2. Industrial activity remains robust, driven by manufacturing growth, industrial production, and increased bank credit to industry. Favorable monsoon conditions and stable groundwater conditions support irrigation and farm activity, although rabi prospects require monitoring.
However, external risks persist, including geopolitical tensions, supply chain disruptions, and rising global energy prices. Inflation risks also loom due to climate, geopolitical, and monetary factors, with the possibility of a strong El Niño impacting rabi crops. Despite these challenges, the Review expects inflation to be contained by the Reserve Bank of India's monetary policies.
The labour market has remained resilient, but households remain pessimistic about immediate job availability. Proactive supply-side measures and market interventions are expected to help cushion temporary price pressures. India's external sector remains strong, supported by services exports, remittance inflows, and capital inflows, although trade relations with the US remain unsettled following the passage of the Graham Bill.
The Review emphasizes the need for sustained, high-quality decision-making and a competitive economy. Improved governance and stronger state capacity at all levels of government are crucial for India to become a successful, innovative, and manufacturing economy. While there are challenges, the Review identifies several bright spots, such as a 15.5% increase in total exports and robust foreign exchange reserves.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
