India’s economy is transitioning from resilience to rebound despite geopolitical tensions, higher oil prices and global uncertainty. Strong recovery in exports, industrial output, PMI, GST collections and bank credit, coupled with benign inflation, robust GDP growth in 2025-26, healthy financial stability, rising FDI and expanding FTAs, positions India to sustain growth momentum.

Despite the month of March 2026 bringing significant uncertainty, including the deepening West Asia conflict, the closure of the Strait of Hormuz, rising crude oil prices, and extreme volatility in the financial markets, the recent performance of the Indian economy has been supported by a strong rebound in many leading economic indicators, such as growth in IIP, Exports, PMI, Bank Credit, and other demand- and supply-side indicators.

India's leading economic indicators highlight a resilient economy despite global headwinds. IIP growth fell from 5.3% in February to 3.2% in March, then recovered to 4.9% in April, indicating increased industrial activity. Exports YoY growth rose to 11.05% in February, then contracted by 4.8% in March due to the West Asia Crisis, before regaining momentum to 13.95% in April. Core infrastructure growth has remained stable at 2.8% in February, 1.2% in March, and 1.7% in April 2026. Furthermore, Bank Credit Growth has been around 16% over this period, reflecting healthy credit demand.

Source : Compiled from various sources

GST collections rose steadily by around 8% from February to April. Business activity remained robust, with the Manufacturing PMI rising to 54.7 and the Services PMI to 58.8 in April 2026. The May PMI data were also robust, with the Manufacturing PMI at 55 and the Services PMI at 59.8. Sales of passenger vehicles remained steady at around 4.4-4.5 lac units in February and May 2026.

The Consumer Price Index remained stable at 3.48% in April. In a nutshell, the trends show strong credit growth, low and stable inflation, improved business conditions, and a recovery in export levels, despite volatility in financial markets.

Despite the tariff troubles and geopolitical quagmire, India’s growth trajectory has remained strong. India’s GDP for the year 2025-26 grew by 7.7%, supported by growth in Agriculture at 3%, Manufacturing at 10.7%, Construction at 7.4% and Services at 9.3%, despite global headwinds.

On the expenditure side, both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) grew by more than 7.5% in FY 2025-26. It is encouraging that, even in the most challenging quarter, the Secondary and Tertiary sectors were the main drivers of real and nominal GVA growth of 7.9% and 9.9%, respectively, in Q4 of FY 2025-26.

The Indian economy has grown robustly in the post-COVID years. From 2021-22 to 2025-26, the average GDP growth has been above 7%, supported by meaningful and effective reforms undertaken by the government and their implementation at the ground level with the help of trade, industry and people. In the RBI's recent monetary policy review, GDP growth has been forecast at 6.6% for 2026-27. The RBI has taken well-calibrated measures to create a promising approach to growth and to control inflation.

RBI’s steps to support trade and industry, such as bearing the full hedging cost until 30th September 2026, restoring export proceeds to 9 months, increasing the limits for investment by NRIs and OCIs in equity instruments traded on the stock market without SEBI registration, and expanding the universe of ‘specified securities’ to include all new issuances of 15-, 30- and 40-year tenor G-secs, will go a long way to bring stability to the financial markets, provide liquidity support for MSMEs, and promote overall growth for the economy.

Keeping the repo rate stable at 5.25% is a strong, calibrated step by the RBI, as repo rate hikes are ineffective against supply-side shocks, weaken economic growth drivers, and there is no strong correlation between the repo rate and CPI, particularly when inflation is driven by supply-side shocks. At this juncture, the RBI's rational approach is highly commendable, as the rise in inflation is short-lived and will decline sharply once the conflict in West Asia is resolved.

Stable interest rates will support demand and potentially benefit investments, consumption, employment, and overall economic growth. In the current global environment, marked by uncertainty and supply chain challenges, policy measures that improve supply conditions, enhance productivity, and ensure market stability will yield better outcomes. A balanced policy approach is essential to contain inflation while sustaining growth momentum and business confidence.

Despite severe supply-side headwinds, CPI inflation is projected at 5.1% for 2026-27, still below the upper band of 6%. The banking and financial system remains healthy, with strong credit growth, comfortable liquidity conditions, and banks and NBFCs maintaining adequate capital buffers. India's external sector also remains relatively stable, supported by strong services exports, remittances, and foreign exchange reserves of USD 682.3 billion.

The RBI announced several measures. We appreciate that, to strengthen capital inflows and support the balance of payments, including easing investment norms for foreign investors, expanding access to government securities, encouraging foreign-currency deposits, and promoting external commercial borrowings. Global investor interest in the Indian economy is strong, and India attracted USD 94.5 billion in FDI in FY 2025-26, with the trend remaining resilient at the start of the current financial year as well.

In recent years, to address the challenges of a rapidly evolving global economic environment, India has steadily expanded its global trade partnerships through Free Trade Agreements (FTAs). India has signed 9 agreements since 2020 that promise growth in the economy, trade, and industry, as well as improved people's welfare. The trade partners with which India has concluded agreements since 2020 include Mauritius, the UAE, Australia, the European Free Trade Association (EFTA), the United Kingdom, Oman, New Zealand, and the European Union (EU), in addition to the USA, where the contours of the agreement are yet to be finalised.

These 9 partners account for almost 40% of India’s total trade. However, the total world imports of these nine trading partners stood at more than $13 trillion (CY2025), whereas their imports from India accounted for less than 2% ($255 billion). Therefore, there is a significant untapped export opportunity, and these agreements can serve as a catalyst for growth, generating momentum in value-added exports. Free Trade Agreements (FTAs) will play a key role in diversifying India's trade and catalysing manufacturing expansion.

Going ahead, despite the West Asian conflict remaining uncertain and without any meaningful resolution, the Indian economy will remain resilient. The recent policy reforms undertaken by the government to support MSMEs, exporters, manufacturers, and people would go a long way towards enhancing India’s economic resilience and helping the economy rebound strongly from any shock caused by global geopolitical developments.

(Dr. S.P. Sharma is Chief Economist, ASSOCHAM and Managing Director, Chief Economist, NDIM NEO Research Centre-NNRC • Former Chief Economist, PHDCCI (PHD Chamber of Commerce and industry, India)

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