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India’s manufacturing activity is improving, credit growth and government capex remain strong, currency is stable, while urban consumption continues to hold up. So, is India’s economy getting better?
BNP Paribas believes the answer is yes. The brokerage said, “Over the past two months, the macro environment in India has improved. Both inflation and GDP growth expectations have remained stable.” However, higher crude oil prices and a potential El Nino-led monsoon deficit remain key risks to the economy. Here is a detailed look at India’s macroeconomic indicators.
1. India industrial activity gains momentum, manufacturing leads recovery
One of the positives for India is its industrial activity, which gained momentum in June. The Index of Industrial Production (IIP) rose 7.3% year-on-year, supported by stronger manufacturing, electricity generation and capital goods production. Manufacturing recorded its highest growth rate of 2026 so far, while production of both durable and non-durable goods remained strong.
Core industry growth also rose to 4.9% year-on-year (YoY) in June, the highest level this year. For July, some high-frequency indicators showed a mixed picture. Passenger vehicle production and GST collections accelerated, while PMI and steel production saw a slight decline year-on-year.
The recovery is also visible in vehicle sales. Passenger vehicle and two-wheeler sales recorded strong growth in July, while fuel consumption also increased, pointing to resilient urban consumption.
2. Credit growth remains strong
Bank credit growth is another major support for economic activity. Credit growth reached around 19% YoY, with lending to the industrial and services sectors are also showing strong momentum.
BNP Paribas said broad-based credit growth was close to 20% YoY, while deposit growth has also started catching up with credit growth.
Activity indicators such as credit card issuance, port traffic and airline cargo also recorded strong growth, pointing to healthy services-sector activity.
3. Inflation outlook remains manageable
Inflation remains manageable, according to BNP Paribas, The brokerage said that although inflation may rise during the second and third quarters of FY27 but it will ease in the fourth quarter.
India’s retail inflation rose marginally to 4.5% in July from 4.4% in June. The month-on-month increase was only 7 basis points, the smallest rise since November 2025.
Looking at the current inflation trajectory, the brokerage does not see an immediate need for a rate hike. However, a larger-than-expected increase in US interest rates could pose a risk to India’s financial conditions.
4. Rupee outlook improves
The rupee has also remained relatively stable, with the USD/INR trading around 95 since the end of May. BNP Paribas expects the currency to find support from improving foreign investor flows and stronger balance-of-payments conditions.
The RBI’s FCNR(B) deposit scheme had attracted around $65.40 billion already according to Ministry of Finance data. BNP Paribas expects it could help push India’s balance of payments (BoP) into surplus in FY27.
5. Government capex stays on track
Government capital expenditure remains a key growth driver despite weaker-than-expected revenue growth.
Capex rose 23.7% year-on-year during April-June, significantly ahead of the government’s FY27 target of 14.3% growth. At the same time, revenue receipts increased 11%, while revenue expenditure rose around 7.5%.
However, subsidy spending increased 37.4% year-on-year, mainly because fertiliser subsidy expenditure rose 57.6%.
BNP Paribas expects the fiscal deficit to decline marginally to 4.3% of GDP in FY27 from 4.4% in FY26.
6. Urban demand stays strong, rural economy weak
Urban consumption continues to remain strong. Improving consumer sentiment, higher vehicle sales and rising fuel consumption are supporting demand.
However, rural consumption remains a weak spot, with food inflation and the deficient monsoon weighing on rural incomes.
“Rising food inflation and the impact of El Nino on the monsoon and crop sowing pose the greatest risks to the rural economy, in our view,” BNP Paribas said.
The brokerage said the monsoon deficit remained 10-15% below the long-term normal, while reservoir levels were lower than a year ago. Food CPI also rose for the fifth consecutive month in July, while rural wage growth has been trending lower in recent months.
Oil, monsoon remain key risks
Despite the improving macro picture, crude oil remains the biggest external risk for India. BNP Paribas noted that oil prices have moved back towards $91 a barrel, and a sharp increase could put pressure on inflation, the current account and the rupee.
The brokerage also expects crude oil to average around $85 a barrel in 2026. At this level, India’s current account deficit (CAD) could remain around 1.2% of GDP, well below the roughly 4% seen during the 2012-14 oil shock.
Trade deficit widens
India’s goods trade deficit widened to $32 billion in July from $30.4 billion in June and $27.9 billion a year earlier.
Goods exports increased 20% year-on-year to $44.2 billion, while imports rose 18% to $76.2 billion.
Overall, BNP Paribas expects India’s macro conditions to remain supportive, with manufacturing, credit growth, government capex and urban demand providing growth momentum. However, developments in crude oil prices and the monsoon will remain important for the outlook.
TOPICSBank credit growthcrude oil pricesCurrent Account Deficiteconomy newsfood inflationGDP growthIIPIIP GrowthIndian EconomyIndustrial productionManufacturingRetail inflationrupeetrade deficit + 0 MoreThis article was first uploaded on August twenty-six, twenty twenty-six, at eleven minutes past five in the evening. © IE Online Media Services (P) Ltd