Indian Economy Ends Q1 FY26 on Mixed Note
India’s economy wrapped up the first quarter of FY26 with a mixed performance across key sectors, reflecting a cautious consumer environment, resilient manufacturing, and divergent sectoral momentum.
GST and Consumption Trends
Goods and Services Tax (GST) collections in June grew by just 6.1% year-on-year, the slowest pace in four years, totaling ₹1.85 lakh crore. This marked a drop from the ₹2 lakh crore-plus seen in May. Advance tax collections also showed limited strength, growing under 4% in Q1—signaling weak private consumption and tepid earnings momentum.
Unified Payments Interface (UPI) transactions continued to remain strong in volume, exceeding ₹24 lakh crore for the month. However, the growth rate of UPI usage has reached its slowest in five years, hinting at saturation in the rapid digitization phase.
Manufacturing and Exports Performance
The manufacturing sector showed resilience, with the HSBC Purchasing Managers’ Index (PMI) touching a 14-month high of 58.4 in June, led by robust export orders. However, the Index of Industrial Production (IIP) reported slower growth, ranging between 1.2% to 1.9% in April and May, impacted by weaker output in mining and electricity.
Non-oil merchandise exports posted a solid 7.5% year-on-year growth in May, signaling some traction in external demand. However, core sectors like cement and steel registered a deceleration due to reduced infrastructure activity and early monsoon effects.
Services and Auto Sector Trends
Services sector trends were uneven. While hospitality and transportation activity showed signs of slowdown, fuel sales and vehicle registrations registered improvements. The auto sector witnessed mixed results: while major automakers like Maruti and Tata reported double-digit declines, Mahindra SUV sales jumped 18% and TVS saw a 10% rise in two-wheeler volumes.
Rural demand remained a key support pillar for manufacturing and FMCG segments, though overall consumption patterns indicate cautious spending.
GDP Outlook and Forecasts
India’s GDP growth forecasts for FY26 remain broadly positive despite these mixed indicators. A Reuters poll pegs growth at 6.4% for FY26, rising to 6.7% in FY27, with public investment leading the charge. S&P Global Ratings recently upgraded its growth outlook to 6.5% citing favorable monsoons, easing oil prices, and tax incentives. The World Bank holds its forecast at 6.3%, acknowledging India’s relative economic stability amid global uncertainty.
The Reserve Bank of India’s Financial Stability Report has also reaffirmed the soundness of India’s macro fundamentals, highlighting robust banking metrics, contained inflation, and a strong forex reserve position.
