India's Economic Momentum Holds Strong Amidst Global Flux: Q2 FY26 Outlook Positive

India’s Economic Resilience Continues in October 2025

India’s economy continues to demonstrate robust performance in October 2025, maintaining its position as one of the fastest-growing major economies globally. Recent data and forecasts from institutions like the Reserve Bank of India (RBI) and the Ministry of Finance suggest a resilient growth trajectory, primarily driven by strong domestic demand, targeted government capital expenditure, and increasing private sector investment. Despite persistent global economic uncertainties, including geopolitical tensions and fluctuating commodity prices, India’s macroeconomic fundamentals appear sound, instilling confidence among investors and policymakers alike.

Macroeconomic Indicators: Growth and Inflation

The latest projections from the RBI, following its September 2025 monetary policy review, estimate India’s GDP growth for the fiscal year 2025-26 to be around 7.0-7.2%. This optimistic outlook is underpinned by sustained momentum observed in Q1 FY26 and anticipated stronger performance in Q2 FY26 across various sectors. The National Statistical Office (NSO) provisional data for Q1 FY26 indicated a growth rate of 7.5%, exceeding initial market expectations.

Inflation management remains a critical focus for the central bank. While retail inflation, as measured by the Consumer Price Index (CPI), eased slightly to 4.8% in September 2025, it still hovers near the upper end of the RBI’s comfort zone of 2-6%. Food inflation, particularly for certain perishables, continues to be a volatile component, influenced by unseasonal weather patterns and supply chain dynamics. Core inflation, however, shows signs of moderation, indicating that demand-side pressures are largely contained. The RBI has reiterated its commitment to keeping inflation within target while supporting growth.

Sectoral Performance: Drivers of Growth

Manufacturing and Infrastructure

The manufacturing sector has been a significant contributor to the current growth cycle. Government initiatives, such as the Production Linked Incentive (PLI) schemes, are yielding tangible results, attracting both domestic and foreign investment in key areas like electronics, automotive components, pharmaceuticals, and textiles. Capacity utilization rates in many industries have risen, signaling healthy demand. Major infrastructure projects, including expressways, dedicated freight corridors, port modernizations, and renewable energy parks, are progressing at an accelerated pace, creating jobs and enhancing logistical efficiencies. The capital expenditure push by the government, which saw a 25% year-on-year increase in H1 FY26, is acting as a powerful multiplier for economic activity.

Services and Digital Economy

The services sector, a traditional powerhouse, continues its upward trajectory. The digital economy, in particular, is witnessing exponential growth, fueled by rapid digitization, increased internet penetration, and the flourishing startup ecosystem. IT and business process management (BPM) services, fintech, and e-commerce platforms are driving innovation and generating substantial employment opportunities. The government’s focus on digital public infrastructure (DPI) further strengthens this segment, making services more accessible and efficient.

Agriculture

Despite the challenges posed by climatic variability, the agriculture sector is projected to record steady growth, primarily due to improved monsoon distribution in critical regions and government support prices for major crops. Timely provision of agricultural credit and irrigation facilities also contributes to its resilience, though dependency on monsoon remains a long-term structural issue.

Investment Landscape and Foreign Direct Investment (FDI)

India remains an attractive destination for foreign capital. In the first half of FY26 (April-September), India recorded over $35 billion in Foreign Direct Investment (FDI) inflows, marking a 12% increase compared to the same period last year. Sectors like green energy, advanced manufacturing, digital services, and logistics have seen significant interest. Domestic private investment is also showing signs of a pickup, encouraged by improving corporate profitability and a stable policy environment. Financial markets reflect this optimism, with benchmark equity indices reaching new highs, supported by robust corporate earnings and foreign institutional investor (FII) interest.

Challenges and Outlook

While the outlook remains largely positive, India’s economy is not without its challenges. Global economic slowdowns could impact India’s export growth, which has shown some moderation in recent months. Managing inflation, particularly food and energy prices, will require continuous vigilance. Employment generation, especially for the burgeoning young workforce, remains a key policy priority, necessitating continued focus on skill development and labor-intensive manufacturing. Furthermore, geopolitical uncertainties pose risks to global supply chains and commodity markets, which could have spillover effects on India.

Looking ahead, India’s economic narrative in October 2025 is characterized by cautious optimism. The government’s structural reforms, coupled with the RBI’s prudent monetary policy, are expected to provide a strong foundation for sustained growth. The emphasis on ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives is fostering domestic capabilities, reducing reliance on imports, and enhancing the country’s economic self-reliance. India is well-positioned to leverage its demographic dividend and growing domestic market to navigate global headwinds and maintain its growth trajectory in the medium to long term.

Conclusion

India’s economy in October 2025 showcases remarkable resilience and dynamism. While global challenges persist, the confluence of strong domestic demand, robust public and private investments, and a proactive policy framework underpins a positive growth outlook. The continuous focus on infrastructure development, digital transformation, and fostering a favorable investment climate positions India strongly for continued economic expansion in the coming years.