Finance ministry estimates India’s Q2 FY27 GDP growth at 7.35%

The finance ministry’s nowcasting model estimates India’s economy will grow 7.35% in FY27, according to its monthly economic report published on Thursday, supported by stronger industrial output, energy consumption, port traffic, GST collections and automobile sales.

"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."

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The IMF has raised its FY27 growth forecast for India to 7.0%, while the World Bank, the OECD and the RBI project growth at 7.1%.

West Asia crisis impact

A slowdown in AI-related investment could weigh on global trade given its high import content, as per the report. Meanwhile, the West Asia crisis continues to fuel global inflation, with headline inflation for calendar year 2026 revised up to 4.7% from the earlier projection of 3.7%. Higher inflation could erode real incomes and prompt tighter monetary policy, dampening demand and, in turn, global trade, it further said.

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Efficacy of rate hike

“Near-term inflation 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 OMCs and curb currency speculation may help buffer extreme exchange rate volatility and mitigate imported inflation, said the report.

Going forward, the efficacy of the recent rate hike in containing secondary inflation effects will depend on the central bank's active liquidity management, as per the ministry’s report.

‘Adequate reserves’

India’s external position remains stable in a challenging global environment. Robust merchandise export growth and a steady services surplus have cushioned the trade balance, while strong capital inflows, particularly banking capital, financed the wider current account deficit during April-August FY27.

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, according to the ministry. “Taken together, these developments provide a supportive foundation for external sector stability, even as global uncertainties and crude oil price risks continue. “