Six months into the present calendar yr, the Ministry of Finance is of the view that the Indian economic system presents an image of “cautious optimism”, with the nation’s macroeconomic fundamentals remaining resilient regardless of world headwinds marked by commerce tensions, geopolitical volatility, and exterior uncertainties. Nonetheless, the Ministry in its newest month financial assessment for June launched Monday, flagged the gradual credit score development regardless of financial easing by the Reserve Financial institution of India (RBI) and personal funding urge for food which will prohibit acceleration in financial momentum.
World slowdown and uncertainty concerning the US tariffs may additionally weigh on India’s commerce efficiency and dampen the nation’s share of exports. Within the medium time period, given the continued momentous shifts in world provide chains within the areas of semiconductor chips, uncommon earths and magnets, India has its job minimize out, the Ministry mentioned.
“Regardless of financial easing and a robust financial institution stability sheet, credit score development has slowed, reflecting cautious borrower sentiment and probably risk-averse lender behaviour. A rising desire for bond markets, significantly industrial papers amongst corporates because of decrease borrowing prices, may additionally clarify the shift. Piggybacking on initiatives just like the Employment Linked Incentive (ELI) scheme, it’s time for corporates to set the ball in movement,” it mentioned.
The RBI had begun pumping cash into the banking system in December 2024, whereas the Financial Coverage Committee (MPC) began slicing rates of interest in February. Nonetheless, the MPC’s 100 foundation factors of fee cuts and the lakhs of crores of cash supplied by the RBI to the banking system has had little affect on demand for loans, with credit score development having virtually halved from the center of 2024. In keeping with knowledge launched on June 30 by the RBI, non-food credit score prolonged by Indian banks rose 9.8 per cent year-on-year as on the finish of Might, slower than 11.2 per cent development in April and 16.2 per cent a yr in the past, after excluding for the affect of the merger of HDFC Financial institution with Housing Improvement Finance Company in July 2023.
The Finance Ministry additionally mentioned that regardless of the broadly optimistic outlook, draw back dangers stay from world slowdown in addition to uncertainty on the US tariffs. “Whereas geopolitical tensions haven’t elevated additional, the worldwide slowdown, significantly within the US (which shrank by 0.5 per cent in Q1 2025), may dampen additional demand for Indian exports. Continued uncertainty on the US tariff entrance might weigh on India’s commerce efficiency within the coming quarters. Gradual credit score development and personal funding urge for food might prohibit acceleration in financial momentum,” it mentioned.
It identified that the financial exercise in actual phrases, that’s, adjusted for inflation, might current a more healthy image than it’s. “Given the deflationary pattern within the wholesale value index, one has to watch financial momentum in nominal portions. Measured in fixed costs, financial exercise might seem more healthy than it’s. All that mentioned, the economic system has the feel and appear of “regular as she goes” so far as FY26 is anxious,” it mentioned.
Inflation, oil costs, agri outlook
General, the Finance Ministry mentioned the primary quarter of FY26 presents an image of resilient home provide and demand fundamentals citing the sharp slide in inflation, beneficial progress of southwest monsoon, agency commerce efficiency amid shifting world commerce patterns. “With inflation remaining inside the goal vary and monsoon progress on monitor, the home economic system enters the second quarter of FY26 on a comparatively agency footing,” it mentioned.
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Wholesale value inflation (WPI) in June had slipped into deflationary zone — a stage beneath zero for the primary time in 20 months — to (-) 0.13 per cent as costs of meals articles and gas registered deflation, together with decrease manufactured product prices. India’s headline retail inflation fee had slowed greater than anticipated to a 77-month low of two.1 per cent in June from 2.82 per cent in Might as meals costs fell 1.06 per cent from a yr in the past, aided by a beneficial base impact.
Given the comfy trajectory of inflation, there may be room for RBI’s financial easing cycle to proceed, the Ministry mentioned. “Core inflation stays subdued, and general inflation is comfortably beneath the RBI’s 4 per cent goal, affording room for the easing cycle to be sustained. The RBI has projected headline inflation at 3.4 per cent for the Q2 of FY26, whereas in Q1, precise inflation got here beneath the Q1 goal of the RBI. It seems doubtless that the total fiscal yr inflation fee would undershoot the central financial institution’s expectation of three.7 per cent,” it mentioned.
Additionally, world crude oil costs are anticipated to stay subdued, following a larger-than-anticipated manufacturing hike by OPEC and its allies, who raised output by 548,000 barrels per day in August, on prime of the manufacturing will increase introduced for the earlier months, it mentioned. On the fiscal entrance, each the Union and State governments have maintained momentum in capital expenditure whereas adhering to consolidation targets, it mentioned, including that the income sources stay buoyant regardless of the tax cuts, persevering with on the double-digit development path.
The agricultural outlook additionally seems sturdy as agricultural exercise acquired a major carry from a beneficial southwest monsoon, which arrived early and has to this point delivered above-normal rainfall, the Ministry mentioned. “Fertiliser availability and reservoir ranges are greater than enough, suggesting a robust outlook for the kharif sowing and harvest and consequent rural revenue and demand. The agriculture sector’s regular efficiency continues to function a stabilising pillar for the broader economic system and bolsters the agricultural outlook. In keeping with NABARD’s rural sentiment survey, over 74.7 per cent of rural households anticipate revenue development within the coming yr, the best because the survey’s inception,” it mentioned.