India’s economy continues to expand unevenly, amid signs of slowing momentum in early Q1, with strength in rural demand, agriculture, and services offset by weakness in industry, exports, and private investment. In Q1 FY26, rural consumption remains firm, supported by a favourable monsoon and rising rural wages, while the recovery in urban demand is moderate and uneven. Investment continues to be driven by government capex, amid cautious private sector sentiment. Exports of goods weakened, but exports of services have held up relatively well.

Overall, real GDP growth is expected to moderate to ~6.2% in FY26 from 6.5% last year, as external headwinds continue to pose downside risks. With CPI inflation easing to a more than six-year low of 2.1% in June, the RBI is expected to cut the repo rate by 25 bps in Q3 FY26—though a cut in August remains on the table. Meanwhile, the US Fed is expected to resume its rate-cutting cycle in September, with a total of ~75-bps in cuts likely by early 2026.