Page 22 - Policy Economic Report - September 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

5. Indian Economy

Snapshot

The Indian economy continues to demonstrate resilience amid heightened geopolitical tensions, elevated
energy prices and a challenging external environment. According to the Asian Development Outlook
(ADO) September 2026, India's growth outlook has been upgraded for FY2026, reflecting stronger-than-
expected investment demand, robust capital spending and resilient services exports. ADB projects India's
economy to grow by 7.0% in FY2026, up from its earlier July projection, while growth is expected to
moderate slightly to 7.1% in FY2027 due partly to the higher growth base established in FY2026.

Economic activity remained strong during the first quarter of FY2026. Real GDP growth stood at 7.8% year-
on-year, supported by broad-based expansion in services and manufacturing. The services sector was the
principal contributor, expanding by 10.0%, with financial, real estate and professional services growing
by 12.1%. Manufacturing also recorded robust growth of 9.2%, supported by stronger activity in
electronics manufacturing, textiles, and rubber and plastics.

On the demand side, domestic demand remained an important anchor of growth, although household
spending came under some pressure from higher consumer-goods prices. Investment activity remained
resilient, supported by strong public capital expenditure and an improving private investment cycle.
Central government capital expenditure remains on track to meet the FY2026 budget target of 11.5%
growth, while corporate deleveraging and stronger cash flows have improved the capacity of the private
sector to invest. Investment pipelines remain particularly strong in areas such as data centres and energy.

External trade has also provided support to economic activity. Strong global demand for electronics,
advanced technology products and computing infrastructure has boosted India's exports, with net exports
contributing positively to growth. Services exports are expected to remain particularly resilient, supported
by continued demand for technology and business services and the expansion of AI-related activity. At
the same time, stronger domestic investment is expected to increase imports of capital and intermediate
goods.

The manufacturing base is also becoming increasingly diversified. ADB notes that manufacturing activity
continued to expand, supported by government initiatives such as production-linked incentives and
programmes targeting semiconductors, electronics and medium- and high-technology industries. The
combination of public investment, private-sector capacity expansion, technology-related exports and
services growth is contributing to a broader base for economic expansion.

Nevertheless, the outlook remains subject to significant external and domestic risks. Higher global energy
prices could increase production and transportation costs, while trade disruptions and weaker global
demand could affect merchandise exports. On the domestic side, a weaker monsoon and intensifying El
Niño conditions could affect agricultural production and food prices. ADB notes that monsoon rainfall
was 14.7% below normal as of 13 September 2026, with larger deficits in central and southern parts of
the country.

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