India's economy enters Q2 FY26 on relatively firm footing: Govt

The country’s economic activity in Q1 FY26 was underpinned by strong domestic demand, robust services growth and encouraging signs from manufacturing and agriculture.

The economy has the look and feel of ‘steady as she goes’ as far as FY26 is concerned, it noted, adding that the economy in mid-2025 presents a picture of cautious optimism.

Domestic financial markets have demonstrated notable resilience, primarily driven by strong domestic investor participation. This resilience is further underpinned by the robust health of the banking sector, as banks have strengthened their capital and liquidity buffers while improving their asset quality, the document said.

Agricultural activity received a significant lift from a favourable southwest monsoon, which arrived early and has so far delivered above-normal rainfall. Fertiliser availability and reservoir levels are more than adequate, suggesting a strong outlook for the kharif sowing and harvest and consequent rural income and demand.

"The agriculture sector’s steady performance continues to serve as a stabilising pillar for the broader economy and bolsters the rural outlook. According to NABARD's rural sentiment survey, over 74.7 per cent of rural households expect income growth in the coming year, the highest since the survey’s inception," the Economic Review noted.

While geopolitical tensions have not elevated further, the global slowdown, particularly in the United States (which shrank by 0.5 per cent in Q1 2025), could dampen further demand for Indian exports. Continued uncertainty on the US tariff front may weigh on India’s trade performance in the coming quarters, the document said.

Slow credit growth and private investment appetite may restrict acceleration in economic momentum, the report added.

ALCHEMPro News Desk (DS)