Inflation Falls, Employment Grows, Exports Remain Stable in Early FY26

The Indian economy continues to display resilience in the face of global turbulence, backed by strong domestic fundamentals and a stable external sector, according to the Finance Ministry’s Monthly Economic Review for May 2025, released recently. High-frequency indicators for the first two months of FY26 suggest sustained economic momentum, despite ongoing geopolitical uncertainties.

“The economy demonstrates resilience amid a turbulent global environment, supported by robust domestic demand, easing inflationary pressures, a resilient external sector, and a steady employment situation,” the review stated.

The ministry highlighted strengthened rural demand, buoyed by a healthy rabi harvest and encouraging monsoon forecasts. In urban areas, consumption has been lifted by a surge in leisure and business travel, with air passenger traffic and hotel occupancy rates showing steady growth.

However, the report also flagged early signs of deceleration in certain segments. “There are signs of softening in areas like construction inputs and vehicle sales,” the Review noted.

On inflation, the report brought encouraging news. “Retail and food price inflation registered a sustained and broad-based decline in May 2025, driven by robust agricultural production and effective government interventions,” it added.

While the broader economic indicators remain strong, India’s financial markets experienced bouts of volatility due to external factors. The year began with heightened global trade tensions, though a partial easing in the second quarter helped stabilize sentiment.

Despite these disruptions, the Indian bond market remained steady in May. The report attributed this to positive domestic developments such as the Reserve Bank of India’s announcement of a record surplus dividend and a robust fourth-quarter GDP growth figure for FY25. These factors contributed to a decline in India’s government bond risk premium, which fell to 182 basis points by May 30.

India’s total exports — including merchandise and services, recorded a year-on-year growth of 2.8% in May 2025, underscoring the economy’s ability to navigate trade uncertainties and weak global demand.

Foreign exchange reserves stood at a robust $699 billion as of June 13, providing an import cover of 11.5 months. The Indian rupee, meanwhile, experienced only “moderate volatility,” a marked contrast to sharper currency fluctuations seen in other economies.

The report also painted a positive picture of the employment scenario. White-collar hiring saw notable momentum in key sectors such as Artificial Intelligence/Machine Learning, Insurance, Real Estate, BPO/ITES, and Hospitality.

“The employment sub-indices of the PMI indicate strong employment growth, with the employment sub-indices reaching a high. Formal job creation is also on the rise, as indicated by the growing net payroll additions under the Employee Provident Fund Organisation,” the Review noted.

The Finance Ministry emphasised that the consistent performance in FY25 highlights the strength of India’s domestic growth engines amid an adverse international backdrop. Private consumption and a resilient services sector were identified as key pillars of the ongoing expansion.

Overall, the outlook for the Indian economy remains positive, supported by robust fundamentals, contained inflation, a healthy external position, and steady labour market conditions.

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