India’s Economy Projected to Grow 7.35% in Q2 FY2026–27 as Industrial Activity and Exports Strengthen

India’s economy is projected to have expanded by 7.35 percent during the second quarter of the financial year 2026–27, supported by industrial production, domestic consumption, investment activity and export growth. According to the Ministry of Finance’s Monthly Economic Review for October 2026, the country’s economic activity maintained considerable momentum during the July–September quarter despite continuing global uncertainties, fluctuations in international energy prices and inflationary pressures.

The review, released by the Department of Economic Affairs on 29 October 2026, examined several high-frequency indicators of economic performance, including industrial output, electricity and fuel consumption, port traffic, Goods and Services Tax collections, automobile sales and bank credit. These indicators suggested that economic activity remained resilient across manufacturing, transportation, energy, services and consumer markets.

The Ministry’s economic nowcasting model estimated real Gross Domestic Product (GDP) growth at 7.35 percent for the second quarter, following the 7.8 percent growth recorded during April–June 2026. Although the estimate indicates a moderation compared with the preceding quarter, it suggests that India’s economy continued to expand at a substantial pace.

The report also highlighted the performance of India’s external sector, with combined merchandise and services exports increasing by 11 percent year-on-year in September 2026. Merchandise exports recorded particularly strong growth of 23.1 percent, supported by engineering goods and electronic products.

Finance Ministry Estimates 7.35 Percent GDP Growth in Second Quarter

The Department of Economic Affairs estimated India’s real GDP growth at 7.35 percent during the second quarter of FY2026–27 using an economic nowcasting framework designed to assess current economic conditions before the publication of official national accounts data. The model incorporates information from multiple sectors to develop a preliminary assessment of economic activity during a recently completed period.

Nowcasting differs from conventional economic forecasting because it uses current and recently available economic indicators to estimate economic performance before comprehensive statistical data become available. The Ministry’s assessment draws on developments in manufacturing, services, taxation, transportation, energy consumption and financial activity to evaluate the strength of the economy.

The estimated growth of 7.35 percent follows the 7.8 percent expansion recorded during the first quarter of FY2026–27. The comparison suggests a modest moderation in the pace of economic growth while indicating continued expansion across major sectors. The Ministry’s assessment also reflects the importance of domestic demand and investment activity in supporting economic momentum amid uncertain global conditions.

The estimate remains preliminary and is subject to confirmation through the official quarterly GDP statistics scheduled for release by the Ministry of Statistics and Programme Implementation on 30 November 2026. The forthcoming national accounts data will provide a more comprehensive assessment of the economy’s performance during July–September.

Industrial Production and Manufacturing Support Economic Expansion

Industrial activity remained an important contributor to India’s economic performance during the second quarter, with the Monthly Economic Review identifying favourable trends in manufacturing and production-related indicators. The Ministry highlighted the continuing importance of industrial investment, domestic manufacturing capabilities and technological development in supporting economic growth.

Manufacturing contributes to economic expansion through the production of consumer goods, industrial machinery, engineering products, intermediate materials and export-oriented commodities. Stronger industrial activity can generate employment, increase demand for raw materials and support businesses operating across transportation, logistics and associated services.

The report emphasised the need to expand manufacturing capacity and strengthen domestic value addition as India seeks to improve its position in international production networks. Increasing domestic value addition allows a greater proportion of manufacturing activity and associated economic benefits to remain within the country rather than depending heavily on imported intermediate products.

India’s growing electronics and engineering industries are particularly relevant to this objective because they form an important component of manufactured exports. Continued investment in production capabilities, technological innovation and supply-chain development could strengthen the competitiveness of Indian manufacturers in both domestic and international markets.

The Ministry also noted that industrial expansion must be supported by improvements in productivity, infrastructure and access to technology. These factors will remain important for sustaining manufacturing growth and increasing India’s participation in global value chains.

GST Collections and Automobile Sales Indicate Resilient Domestic Demand

Goods and Services Tax collections were among the major indicators supporting the Ministry’s assessment of economic activity during the second quarter. Gross GST collections increased by approximately 15 percent year-on-year during July–September 2026, compared with growth of around 8.4 percent in the preceding quarter.

GST revenue provides an indication of taxable economic transactions involving goods and services. Changes in collections can reflect developments in consumption, business activity, prices and tax compliance. The stronger growth recorded during the quarter therefore formed part of the broader evidence examined by the Ministry while assessing domestic economic conditions.

Automobile sales also contributed to the assessment of consumer demand and business activity. Vehicle purchases are associated with household spending, commercial investment, financing conditions and expectations concerning future economic activity. Demand across passenger vehicles, two-wheelers and commercial vehicles provides information about spending patterns in both urban and rural markets.

The Ministry identified automobile sales as one of the high-frequency indicators suggesting continued economic activity during the quarter. Vehicle demand also influences manufacturing, steel production, component suppliers, transportation services and several other industries connected with India’s automotive sector.

Taken together, GST collections and automobile sales indicated that domestic demand remained an important source of support for the economy. However, the Ministry’s growth assessment relied on a broader range of indicators rather than treating any individual measure as a direct substitute for GDP data.

Energy Consumption and Port Traffic Reflect Industrial and Commercial Activity

The Monthly Economic Review also examined electricity consumption, petroleum product demand and port traffic to assess the condition of India’s industrial and commercial sectors. These indicators provide insights into the movement of goods, the operation of production facilities and the level of economic activity across different regions.

Electricity consumption is closely connected with industrial manufacturing, commercial establishments, agricultural operations and household demand. Changes in electricity use can therefore provide information about developments in economic activity, although consumption may also be influenced by weather conditions, energy efficiency and seasonal factors.

Petroleum product consumption offers another indication of transportation and industrial activity. Demand for diesel, petrol and other petroleum products is influenced by freight movement, passenger transportation, construction, agricultural operations and manufacturing requirements.

Port traffic is particularly important for India because the country’s major ports handle substantial quantities of imported energy commodities, industrial raw materials, machinery and export cargo. An increase in cargo movement can indicate stronger trade activity and greater demand for goods required by domestic industries.

The Ministry reported favourable trends across several of these indicators during the second quarter. Their combined performance suggested that economic activity continued across manufacturing, transportation, logistics and energy-intensive industries.

India’s Merchandise Exports Rise 23.1 Percent in September 2026

India’s external sector recorded strong export growth in September 2026 despite uncertainties affecting international trade and global economic conditions. According to the Ministry of Finance, combined merchandise and services exports increased by 11 percent year-on-year during the month, while merchandise exports expanded by 23.1 percent.

The increase in merchandise exports was supported by engineering goods and electronic products, highlighting the contribution of manufacturing industries to India’s international trade performance. Engineering exports encompass a broad range of products, including industrial machinery, electrical equipment, mechanical components and other manufactured goods used across different sectors.

Electronic products have become an increasingly important component of India’s export portfolio as domestic manufacturing capabilities expand. Greater production of electronic devices and related components has created opportunities for Indian manufacturers to participate in international supply chains.

The strong performance of merchandise exports indicates continued demand for Indian manufactured products in overseas markets. It also reflects the importance of expanding domestic production capabilities and strengthening the competitiveness of export-oriented industries.

The Ministry observed that international trade conditions remained uncertain because of geopolitical tensions, fluctuations in commodity prices and changes in global economic demand. Maintaining export growth will therefore require continued improvements in manufacturing efficiency, product quality, logistics and market access.

Services Exports Support India’s External Economic Stability

India’s services sector continued to play an important role in supporting the country’s external economic position during September 2026. The Monthly Economic Review highlighted the contribution of services exports to foreign exchange earnings and the overall balance of trade in goods and services.

India exports a wide range of services, including information technology, business process management, professional services, financial services and other technology-enabled activities. These industries have developed substantial international markets and contribute to employment, business investment and the country’s foreign exchange earnings.

The review reported an improvement in India’s combined merchandise and services trade position during September, supported by stronger exports and the continued contribution of services trade.

The resilience of services exports is particularly significant during periods of uncertainty in international merchandise trade. While demand for manufactured products may be affected by changes in global industrial activity, services exports provide an additional source of international revenue.

Nevertheless, the Ministry noted that India’s external sector remains exposed to developments in international commodity markets and transportation networks. Higher energy prices and disruptions in shipping routes can increase import costs and influence the country’s trade balance.

Strengthening export competitiveness and expanding participation in international markets will therefore remain important for maintaining external economic stability.

Bank Credit Growth Supports Investment and Business Activity

The Monthly Economic Review identified continued expansion in bank lending as another indicator of economic activity. Bank credit growth remained strong at approximately 21.6 percent year-on-year as of 30 September 2026, reflecting continued demand for financing across different segments of the economy.

Bank lending supports economic growth by providing businesses with financial resources for investment, working capital, equipment purchases and production expansion. Access to credit is particularly important for enterprises seeking to increase manufacturing capacity, improve infrastructure or expand commercial operations.

Household borrowing also influences economic activity through financing for housing, vehicles and other major purchases. The availability and cost of credit can therefore affect both consumption and investment decisions.

The Ministry’s review suggested that continued credit expansion was helping support domestic economic activity. At the same time, the sustainability of credit growth depends on lending standards, the repayment capacity of borrowers and the overall stability of the financial system.

The report highlighted the resilience of India’s banking sector amid international economic uncertainty. A stable financial system is important for maintaining the flow of credit to productive activities and supporting long-term investment.

Government Reforms Expected to Improve Business Conditions

The Ministry of Finance highlighted the role of economic reforms and improvements in administrative processes in supporting India’s growth outlook. Recent changes in GST procedures and other business-related regulations are expected to improve compliance efficiency and reduce operational difficulties for enterprises.

Simplified tax procedures can help businesses manage their financial resources more effectively by reducing administrative delays and improving the predictability of compliance requirements. These improvements are particularly important for smaller enterprises, which may have limited resources available for managing complex regulatory procedures.

The Ministry also emphasised the importance of strengthening domestic value addition and expanding manufacturing capabilities. These objectives are linked to India’s efforts to improve industrial competitiveness and increase its participation in global supply chains.

Investment in infrastructure, technology and manufacturing capacity remains essential for supporting economic expansion. The report indicated that policy measures aimed at improving business conditions could contribute to investment activity and strengthen the productive capacity of the economy.

However, the effectiveness of these measures will depend on their implementation and the extent to which businesses translate improved operating conditions into greater investment, employment and production.

Higher Crude Oil Prices and Food Inflation Pose Economic Challenges

Despite favourable economic indicators, the Ministry of Finance cautioned that inflationary pressures and international commodity price movements could affect India’s growth outlook during the second half of FY2026–27.

Higher crude oil prices remain an important concern because India depends substantially on imported petroleum to meet its energy requirements. Changes in international oil prices influence transportation costs, manufacturing expenses, household expenditure and the country’s import bill.

When petroleum prices increase, the additional costs can affect industries that depend heavily on transportation and energy. These pressures may eventually influence the prices of goods and services purchased by consumers.

The Ministry also highlighted food inflation as an important economic risk. Agricultural production and food prices are influenced by rainfall distribution, crop conditions, irrigation availability, transportation costs and seasonal supply patterns.

According to the review, rainfall during the June–September 2026 monsoon season was approximately 13 percent below the long-period average. Unfavourable rainfall conditions can affect agricultural production in certain regions, although the actual impact depends on crop patterns, irrigation infrastructure and the timing of rainfall.

The Ministry noted that uncertainties surrounding the Kharif agricultural season and food prices would require continued monitoring. Maintaining price stability while supporting economic expansion remains an important challenge for policymakers.

Global Financial Volatility and Exchange Rate Pressures Require Monitoring

The Monthly Economic Review examined the possible effects of international financial developments on India’s economic outlook. Changes in global interest rates, bond yields and investment flows can influence financial conditions in emerging economies, including India.

Higher bond yields in major developed economies can affect the movement of international capital as investors reassess the returns available from financial assets in different markets. Such developments may influence foreign portfolio investment, exchange rates and domestic financing conditions.

The Ministry highlighted external pressures affecting the Indian rupee while observing that India’s foreign exchange reserves remained adequate according to conventional reserve adequacy measures.

India’s foreign exchange reserves stood at approximately $721 billion as of 16 October 2026. The review indicated that these reserves provided import cover equivalent to approximately 10.3 months.

Foreign exchange reserves play an important role in supporting external financial stability because they provide resources for meeting international payment obligations and managing periods of financial market volatility.

The Ministry nevertheless cautioned that geopolitical tensions, international commodity prices and changes in global capital flows could continue to influence India’s financial environment.

Manufacturing Competitiveness and Productivity Remain Important Priorities

The Ministry’s assessment emphasised that sustaining economic growth will require continued improvements in manufacturing competitiveness, domestic value addition and productivity.

India’s expanding manufacturing industries offer opportunities for increasing industrial output, developing technological capabilities and generating employment. However, long-term competitiveness depends on the ability of enterprises to produce goods efficiently while meeting international quality and performance requirements.

Investment in modern machinery, research and development, workforce skills and logistics infrastructure can help businesses improve productivity and participate more effectively in international markets.

The review also highlighted the importance of strengthening domestic supply chains so that Indian industries can reduce vulnerabilities associated with disruptions in international production and transportation networks.

Improving productivity across manufacturing and services will remain important for translating economic expansion into higher incomes and sustainable employment opportunities.

The Ministry indicated that continued policy support, investment and technological development could contribute to stronger economic performance over the medium term.

India’s Economic Outlook Remains Supported by Domestic Demand and Exports

The Ministry of Finance’s October 2026 Monthly Economic Review presents an assessment of an economy continuing to expand despite challenging international conditions. The estimated GDP growth of 7.35 percent during the July–September quarter reflects activity across manufacturing, services, investment and domestic consumption.

The performance of GST collections, automobile sales, energy consumption, port traffic and bank credit indicates continued economic activity across different sectors. Strong merchandise export growth during September also highlights the contribution of Indian manufacturing industries to international trade.

At the same time, the report identifies several challenges that could influence economic performance during the remainder of FY2026–27. These include higher crude oil prices, food inflation, uncertain agricultural conditions and volatility in international financial markets.

Sustaining economic momentum will require continued investment in infrastructure, improvements in productivity, stronger manufacturing capabilities and policies that support price stability.

The Ministry’s 7.35 percent growth estimate provides a preliminary indication of India’s economic performance during the second quarter. The official GDP figures, scheduled for publication on 30 November 2026, will provide a more complete statistical assessment of growth during the period.

---

References

1. Ministry of Finance — Department of Economic Affairs

Document: Monthly Economic Review, October 2026

Publication date: 29 October 2026

Official source: https://www.dea.gov.in/reports-monthly-economic-report

2. Ministry of Statistics and Programme Implementation

Official national accounts statistics and quarterly GDP estimates.

Official source: https://www.mospi.gov.in/

3. Ministry of Commerce and Industry

Official merchandise export and import statistics.

Official source: https://www.commerce.gov.in/

4. Reserve Bank of India

Official information concerning bank credit, foreign exchange reserves, monetary policy and financial sector developments.

Official source: https://www.rbi.org.in/

5. Akashvani News — 30 October 2026

Report: India’s Economy Projected to Grow 7.35% in Q2 FY27.

Source: https://newsonair.gov.in/indias-economy-projected-to-grow-7-35-in-q2-fy27/

---