Indian Economy Maintains Strong Momentum in Q1 FY26: Finance Ministry

The Indian economy continues to show robust momentum in the first quarter of FY26, buoyed by resilient domestic consumption, expanding services and construction sectors, and favourable monsoon conditions. According to the Ministry of Finance's Monthly Economic Review (MER) released on Monday, the country is navigating global headwinds with stable growth across key indicators.

The report highlights a combination of factors contributing to this optimistic outlook, ranging from a surplus in the capital and financial account to steady trade performance, resilient business activity, and the return of monsoon rains that bolster rural demand and agricultural output.

The services sector remained the key driver of economic activity in Q1, anchoring overall growth alongside continued expansion in manufacturing and construction. The MER notes that domestic demand remains the core engine of India's economic resilience, even as the global landscape is challenged by high commodity prices, trade imbalances, and geopolitical uncertainty.

Consumers are experiencing relief on the inflation front. Headline retail inflation, measured by the Consumer Price Index (CPI), fell to a 77-month low of 2.1% in June 2025, the sharpest drop in over six years, largely due to declining prices of essential food items like vegetables and pulses.

Meanwhile, the labour market is showing positive signs. White-collar job hiring recorded double-digit growth year-on-year, while formal employment surged. The Employees’ Provident Fund Organisation (EPFO) reported record-high net member additions in May 2025, pointing to a sustained recovery in formal job creation.

India’s external sector has held firm amid global turbulence. Exports of goods and services posted a 5.9% year-on-year increase, while remittance inflows touched an all-time high of $135.5 billion in FY25, a 14% rise compared to the previous year. The surge in remittances has played a crucial role in supporting domestic consumption and ensuring overall macroeconomic stability.

On the fiscal front, the Union Government is making consistent strides in consolidation, with a clear emphasis on improving expenditure quality. Revenue collection remains on track, while capital expenditure, including grants to states for asset creation, is expected to double between FY22 and FY26.

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