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The Ministry of Finance’s nowcasting model estimates that India’s economy will grow 7.35 per cent in Q2 FY27, according to its monthly economic report published on Thursday. The outlook is supported by stronger industrial output, energy consumption, port traffic, goods and services tax (GST) collections and automobile sales.
The International Monetary Fund (IMF) has raised its growth forecast for India in FY27 to 7 per cent, while the World Bank, the Organisation for Economic Co-operation and Development (OECD) and the Reserve Bank of India (RBI) project growth of 7.1 per cent.
Domestic demand and investment to support growth
According to the report, domestic demand, investment activity and structural reforms are expected to support growth through the remainder of the financial year. Recent GST process reforms are expected to ease compliance and working capital constraints for businesses. Healthy credit growth and recent trade agreements are also expected to provide additional support to consumption, investment and exports.
The outlook, however, remains subject to significant risks. A slowdown in artificial intelligence-related investment could weigh on trade, given its high import content. Meanwhile, the West Asia crisis continues to exert pressure on prices worldwide.
Industrial outlook supported by production and credit
The near-term industrial outlook remains supported by firm production, strengthening order flows, improved manufacturing sentiment and robust industrial credit, the report said.
At the same time, uncertainty around energy prices, supply-chain pressures and geopolitical developments remains relevant to manufacturing costs and investment decisions.
Sustaining industrial momentum while translating policy support into greater production at scale, higher domestic value addition and stronger export competitiveness will remain important, the report said.
Food supply measures may ease inflation, but energy risks persist
Near-term inflation dynamics will be shaped by domestic food supply management, global energy volatility and systemic liquidity conditions, according to the report.
On the food front, supply-side interventions, including Kharif onion releases through the ‘Kanda Express’, stockholding limits on sugar dealers and cuts in Basic Customs Duty (BCD) on crude edible oils, are expected to ease price pressures on key kitchen staples.
However, downside risks persist from an intensifying El Nino event, which threatens soil moisture during the upcoming Rabi sowing season, as well as demand-side pressure during the festive period. Externally, elevated crude oil prices and maritime freight disruptions across West Asian transit routes pose continuing upside risks to input costs.
Recent RBI measures to supply direct dollar liquidity to public-sector oil marketing companies (OMCs) and curb currency speculation may help buffer extreme exchange-rate volatility and mitigate imported inflation, the report said.
Foreign exchange reserves provide adequate import cover
India’s external position remains stable despite a challenging global environment. Robust merchandise export growth and a steady services surplus have cushioned the trade balance, while strong capital inflows, particularly banking capital, financed the wider current account deficit during April-August FY27.
Although external pressure on the rupee persists, India’s foreign exchange reserves are currently adequate by standard reserve adequacy metrics, providing import cover of 10.3 months, according to the ministry.
“Taken together, these developments provide a supportive foundation for external sector stability, even as global uncertainties and crude oil price risks continue,” the report said.
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