With inflation at a series low, India forecasts stable FY26 growth

India is expected to maintain its growth momentum through the remainder of FY26, supported by easing inflation, firm domestic demand and continued public capital expenditure, the Finance Ministry said in its latest Monthly Economic Review. The assessment, released on Thursday, said the economy remains well positioned to navigate external risks despite a volatile global environment.

The Review noted that macroeconomic conditions remain stable, with inflation expectations anchored and consumption indicators strengthening following the rationalisation of GST rates. It said agricultural activity has been buoyant, helped by the robust onset of Rabi sowing and adequate reservoir levels, which are expected to support food supply and rural incomes.

Corporate performance has remained healthy, with profitability and balance sheets holding steady. Domestic financial markets continue to draw strength from institutional flows, while services exports provide an important offset to weakness in merchandise trade. The Review said this resilience in services remains a key pillar supporting the external sector.

The Ministry said the inflation outlook has improved markedly, aided by softening global commodity prices, benign energy markets and targeted domestic supply interventions. But it cautioned that risks from shifting global trade policies, geopolitical tensions and financial market volatility warrant vigilance, as these factors could weigh on exports, capital inflows and investor sentiment.

Retail inflation in October fell to 0.25 per cent, its lowest level in the current series, down from 1.44 per cent the previous month. The decline was attributed to the full impact of GST rate reductions, favourable base effects and a sharp fall in food prices. Food inflation fell by 5 per cent — the steepest drop in over a decade — driven by corrections in vegetable prices, particularly tomatoes, onions and potatoes, as well as easing pulses prices. Core inflation held steady at 4.3 per cent, indicating stable underlying demand.

For the April–October period, inflation averaged 4.8 per cent, signalling a consistent easing of price pressures. The Monetary Policy Committee has revised its inflation projection for FY2025–26 to 2.6 per cent, reflecting confidence that headline inflation will remain contained, assuming normal weather conditions and no major supply disruptions.

The Review concluded that India’s economic trajectory remains favourable, supported by policy momentum, domestic demand and improving price stability. While global uncertainties continue to pose risks, the Ministry said the economy has the capacity to absorb external shocks and sustain its expansion.