Inflation Eases, Jobs Rise, Exports Hold Steady: India’s Economy On Solid Footing In FY26
Urban consumption is being supported by increased leisure and business travel, as seen in the rise of air passenger traffic and hotel occupancy, the report said.
High-frequency indicators for the first two months of FY26 indicate resilient performance of the domestic economy amid the heightened geopolitical situation, Finance Ministry’s ‘Monthly Economic Review for May 2025’ said on Friday, adding that overall, the outlook for the Indian economy remains positive.
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 positive trajectory appears to be continuing in FY26, with initial high-frequency indicators (HFI) indicating that economic activity has remained resilient. HFIs such as e-way bill generation, fuel consumption, and PMI indices point to continued resilience,” the Economic Review noted.
Rural demand has strengthened further, supported by a healthy rabi harvest and a positive monsoon outlook. Urban consumption is being supported by increased leisure and business travel, as seen in the rise of air passenger traffic and hotel occupancy.
“However, there are signs of softening in areas like construction inputs and vehicle sales. Retail and food price inflation registered a sustained and broad-based decline in May 2025, driven by robust agricultural production and effective government interventions,” the Economic Review emphasised.
While domestic indicators have remained largely positive, financial markets experienced volatility as a result of external developments. The significant escalation of trade tensions in early 2025, followed by a partial de-escalation in the second quarter, contributed to considerable volatility in the financial markets.
However, the Indian government bond market exhibited stability and certainty in May, driven by factors such as the announcement of a record surplus dividend by the RBI and a robust growth reading of Q4 FY25. Consequently, the risk premium on India’s government bonds decreased to 182 basis points as of May 30.
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On the external front, India's total exports (merchandise and services) recorded a YoY growth rate of 2.8 per cent in May 2025, reflecting the resilience of our exports amid tariff uncertainties and subdued global economic conditions, said the Review.
As of June 13, foreign exchange reserves remain strong, standing at $699 billion, which provides an import cover of 11.5 months. Additionally, the Indian rupee has experienced moderate volatility, in contrast to the more pronounced adjustments observed in other economies.
The labour market indicators show signs of stability. White-collar hiring witnessed a rise in hiring with core sectors such as AI/ML professionals, Insurance, Real Estate, BPO/ITES, and Hospitality leading the hiring growth.
“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.
Steady economic performance in FY25 underscores the resilience of domestic growth drivers amid a challenging global environment. Robust private consumption and resilient services sector activity were key contributors to overall economic expansion.
“The positive momentum has been extended into the early months of FY26, as reflected in the performance of high-frequency indicators such as e-way bill generation, fuel consumption and PMI indices among others,” according to the Economic Review.
(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)
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