Economy On 'Stable Footing' As Inflation Eases And Demand Holds Firm: Finance Ministry Report
India's economic growth outlook for the current fiscal year remains strong, supported by robust domestic demand, easing inflation and recent consumption tax cuts, the government said in its September economic report. The report, released on Monday, expresses confidence in the economy's ability to maintain its growth trajectory, citing positive indicators across various sectors.
Inflation Under Control
A key highlight of the Finance Ministry's report is the easing of inflationary pressures. Prices are expected to remain soft in the financial year ending March 31, helped by a positive outlook for food production. This is despite reduced acreage under oilseeds and cash crops and some weather-related crop losses. Headline inflation declined to 1.5 percent in September 2025, driven by lower food prices, while core inflation rose to 4.6 percent. The government's proactive measures to manage supply chains and stabilize commodity prices have contributed to this positive trend.
Robust Domestic Demand
The Indian economy continues to benefit from strong domestic demand, which is a major driver of growth. Private consumption and public investment have been buoyant, contributing to a real GDP expansion of 6.5 percent in FY2024-25. In the second quarter of FY2025-26, real GDP grew 7.8 percent, helped by firm rural demand and stable inflation dynamics. The steady improvement in the labor market, with rising formal employment and real wages in both rural and urban areas, further supports this demand. Unemployment remained low at 5.2 percent.
Diversification of Trade
India's trade performance for September 2025 showed early signs of diversification in export destinations. This is a positive development, especially as trade deal negotiations with the United States continue. The South Asian nation currently faces 50% punitive tariffs on its exports to the U.S., with half of those duties imposed in retaliation for its purchases of Russian oil. According to the latest trade data, about 55% of Indian exports to the U.S. were affected by the tariff hikes.
Government's Commitment to Growth
The government is determined to maintain this growth momentum by continuing its plans to grow the economy, protecting public services and cutting borrowing. The government's plans are underpinned by its non-negotiable fiscal rules which provide credibility by ensuring day-to-day spending is met with revenues, while allowing the step change needed in investment to grow the economy. The government is also focused on supply-side reforms to boost productivity.
IMF's Positive Assessment
The International Monetary Fund (IMF) has also lauded India's strong economic fundamentals and contained inflation. The IMF noted that “real GDP growth has remained robust following a strong post-pandemic recovery,” adding that reforms such as the goods and services tax (GST), inflation targeting and the expansion of digital public infrastructure “have laid a strong foundation for sustained growth". It highlighted that these gains have contributed to rising living standards and a sharp drop in extreme poverty, now at 5.3 percent. The IMF projects real GDP growth of 6.6 percent in FY2025-26 and 6.2 percent in FY2026-27.
Challenges and Way Forward
Despite the positive outlook, the Finance Ministry report acknowledges potential challenges such as external headwinds and the need for continued vigilance on the fiscal front. The government remains committed to taking decisive action to cut the cost of living and bring down inflation. The focus will be on maintaining a stable macroeconomic environment, promoting investment, and enhancing productivity to ensure sustainable and inclusive growth.
