India’s Economy Powers Ahead with Strong Demand, Low Inflation, and Rising Reserves: Finance Ministry Review

India’s economy continues to power ahead even as global growth wobbles. According to the Ministry of Finance’s Monthly Economic Review for September 2025, strong domestic demand, GST reforms, and upbeat festive spending are driving momentum, making India a bright spot amid a fragile world economy.

The report notes, “India’s economy continues to gain momentum amid global uncertainties.” E-way bills, car sales, and FMCG data point to robust activity. The IMF has revised India’s FY26 GDP growth forecast to 6.6%, while the RBI projects an even stronger 6.8%, reflecting confidence in the country’s near-term prospects.

Global Economy: Growth Looks Better, But Risks Remain

The global economic picture is mixed. The IMF recently raised its 2025 growth forecast to 3.2% from 3%, as front-loaded trade and lower effective U.S. tariffs stabilize activity. However, the review warns this stability is fragile.

Rising sovereign bond yields, higher U.S. unemployment, and China’s slowing recovery pose risks. “Structural weaknesses persist in the world economy, even though 2025 growth looks better on paper,” the report cautions, adding that trade tensions and protectionism could dampen 2026 growth.

Also Read: India’s August 2025 Trade Deficit Narrows 54.6% YoY to USD 9.9 Billion Amid Record Global Trade Uncertainty | Monthly Economic Review | Republic World

Inflation: Low for Now, But Watch Out

Retail inflation eased to 1.54% in September, led by falling food prices. “Deflation in food categories has contributed to keeping inflation well under control,” the report highlights.

Food inflation remains negative at -2.28%, though core inflation is steady at 4.6%. The ministry warns that weather shocks or supply disruptions could push prices higher, especially in edible oils and fruits.

Trade: Exports Grow, But Risks Loom

India’s exports grew 4.4% in H1 FY26 to $413.3 billion, supported by a 6.1% rise in services and a 42% jump in electronics shipments. “The resilience in global trade, despite uncertainties, supports a positive growth outlook,” the review notes.

Forex reserves remain strong at $697.8 billion, covering 11.3 months of imports. Still, the report flags risks to merchandise exports from global slowdowns and oil price fluctuations.

Jobs: More Hiring, But Uneven Gains

India’s labour market remains solid, with participation at 55.3% and unemployment down to 5.2%. AI-related hiring jumped 61% year-on-year. However, the report observes that agriculture jobs are declining while industrial employment rises; this is a shift requiring careful management. Government skilling programs continue to aid employment generation, though global uncertainties could impact hiring trends.

Banking and Reforms: Supporting Growth

Banks remain well-capitalised, with liquidity at Rs 5.2 lakh crore and lower lending rates. The RBI’s new Expected Credit Loss framework is expected to improve credit flow, while GST 2.0 and programs such as PRIP for the pharma sector aim to boost jobs and industrial competitiveness.

Risks and Cautions

The report lists external risks, trade tensions, rising bond yields, and volatile capital flows alongside domestic concerns like uneven food prices and slower credit expansion. It recommends close monitoring of food supply chains, diversifying exports, and accelerating reform efforts to maintain growth momentum.

Looking Ahead

With low inflation, high reserves, and robust demand, India’s economic fundamentals remain strong. But the Finance Ministry urges vigilance against both global and domestic headwinds.

Its key prescriptions: strengthen food supply logistics, expand skilling to match job demand, diversify exports, and fully implement RBI-led banking reforms. Innovation and rural development, the report concludes, will be vital to keeping India’s economy resilient and attractive to investors in the months ahead.