Finance Ministry Estimates Q2 Economic Growth At 7.35%

activity and higher consumption, as against 7.8 per cent growth seen in April-June, the Ministry of Finance said in its Monthly Economic
Review for October released on Thursday.

The ministry said that the focus of policymakers during the second half of the financial year will be “sustaining economic activity while
safeguarding price stability” amidst elevated crude oil prices, higher food inflation and an uncertain outlook for the kharif crop.

The review cited a host of high frequency indicators such as GST collections, E-way bill generation, freight and logistics indicators, petrol and diesel consumption, automobile sales that point to sustained domestic demand and continued economic momentum in Q2 FY27, consistent with the improved growth outlook.

Reflecting these favourable conditions, bank credit growth remained strong at 21.6 per cent year-on-year as of September 30. The business
activity moderated in Q2, but showed signs of strengthening towards the end of the quarter. The recovery in PMI readings, alongside improved business sentiment, points to a cautiously favourable outlook for the coming months.

Healthy credit growth and recent trade agreements are expected to provide additional support to consumption, investment and exports.

“Taken together, these indicators point to sustained growth momentum in Q2 FY27. Following real GDP growth of 7.8 per cent in Q1 FY27, the
Department’s nowcasting model, introduced in the Economic Survey 2025-26, nowcasts real GDP growth of 7.35 per cent in Q2 FY27,” the review said.

On inflation, the report said that near-term dynamics will be shaped by a combination of domestic food supply management, global energy volatility, and systemic liquidity conditions.

On the food front, supply-side interventions such as Kharif onion releases via the ‘Kanda Express’, stockholding limits on sugar dealers, and Basic Customs Duty (BCD) cuts on crude edible oils are expected to ease price pressures on key kitchen staples.

However, downside risks persist from an intensifying El Niño event that threatens soil moisture during the upcoming Rabi sowing season, as well as demand-side pressure during the festive period.

Externally, elevated crude oil prices and maritime freight disruptions across the West Asian transit routes pose ongoing upside risks to input costs, though recent RBI measures to supply direct dollar liquidity to public-sector oil marketing companies and curb currency speculation may help buffer extreme exchange rate volatility and mitigate imported inflation.

“Going forward, the efficacy of the recent rate hike in containing secondary inflation effects will depend on the central bank’s active liquidity management,” the report said.

The report also noted that India’s external position remains stable in a challenging global environment.

“Although external strain on the rupee persists, India’s foreign exchange reserves position is currently adequate by standard reserve adequacy metrics, providing an import cover of 10.3 months. Taken together, these developments provide a supportive foundation for external sector stability, even as global uncertainties and crude oil price risks continue.”