insights india

Flash India: Growth, liquidity and policy response 22 September 2026

Radhika Rao, Senior Economist GROWTH MOMENTUM TO SUSTAIN, EXTERNAL RISKS LINGER

India registered strong growth at the start of FY27. Sustaining this performance will depend increasingly on how effectively it navigates a more uncertain global environment. Besides trade fragmentation, geopolitical tensions leading to higher energy prices, and shifts in international capital flows present key external risks. • High frequency indicators might keep 2QFY growth India joined its Southeast Asian peers in close to 7%. posting an upside surprise on growth in • Pace to moderate in 2HFY. 1QFY27 (Apr-Jun26), up a firm 7.8% yoy. few • Retail inflation is likely to points of note: continue rise and broaden in A) strong 1Q growth print reinforced the view scope, necessitating a tighter that India’s domestic demand cycle was more policy bias. WPI likely to rise resilient than initially assumed, with by double-digits. consumption, public capex and manufacturing • Special swap windows helped providing a solid base despite external shocks. to stem bearish INR B) prevailing tailwinds by way of indirect tax positioning. relief in 4Q25, real rate buffer, and easier • Organic capital flows need to monetary conditions (earlier cuts), were also catch up. supportive; • Liquidity management is in C) nominal GDP growth returned above 10% focus, with a moderate after two years on higher deflators, though correlation to inflation. some segments like manufacturing faced • Twin-deficit risks are partly negative deflators as input prices rose at a offset by stronger macro faster pace than output due to commodity price buffers. increases and import intensity; D) Revisions to backdated numbers, to account for output PPI series, pushed up FY26 growth to 7.8% (from 7.7% earlier). Two prior years were also revised.

India: Growth, liquidity and policy response September 22, 2026

High-frequency indicators and eight core index growth come off highs. Auto production continues to Into July-August, high frequency expand, though output and sales might indicators are holding up, including GST moderate in the next quarter on base e-way bills, indirect tax revenues, effects due to indirect tax cuts in the electricity demand and growth in digital same time year ago. Forward-looking payments, while toll collections and firm surveys have improved, after petroleum consumption slipped. For initially coming under pressure. Credit demand, a contained extent of increase growth has maintained a strong in retail pump prices shielded momentum this year. households from the surge in global crude prices, but other market linked fuel variants have climbed in recent months. On the employment front, job reductions were witnessed in the software sector, even as fresh opportunities were reported in global capability centres, electronics/ semiconductors, healthcare, auto/ ancillary etc. Wage growth in services has improved, manufacturing has been steady, while farm sector moderated, according to consumption surveys by CMIE.

Sectors associated with rural demand might moderate amid weaker kharif sowing activity and lower reservoir levels impacting the rabi crop activity. Cumulative southwest monsoon is ~15% below the long-term average by tail end of the season. This takes the country on course to face its driest monsoon since 2009 (which was 18% below LPA). Uneven geographical spread is notable, with south and east India registering nearly 25% shortfall. While kharif sowing is on track with 99% of acreage completed, the winter crop might come under pressure as weather Industry indicators are a mixed bag, with developments suggest El Niño could PMIs maintaining their foothold in the extend into 2027. expansionary terrain, while production