India’s economy continues to chart a steady course despite global uncertainties, with notable improvements in high-frequency indicators across both manufacturing and services sectors.
According to a report released by Bank of Baroda (BoB) on Friday, consumption trends have also picked up pace in the first quarter (Q1) of FY26 compared to the final quarter of FY25.
The report indicates promising indicators of elevated consumption demand, as evident in steel usage on the rise, a boom in electronic imports, and increased central government spending. These signs indicate firmer domestic activity and enhanced confidence among businesses and consumers alike.
There has also been an increase in activity within the services sector, reflected by increased services PMI readings, an increase in vehicle registrations, more diesel consumption, stronger state revenue collections, and increased generation of e-way bills. These elements combined point towards services gaining momentum.
The report, however, also pointed to some weak spots. Two-wheeler sales have been in the doldrums, and consumer durables and fast-moving consumer goods (FMCG) production has also seen a discernible slowdown. In spite of these hostilities, the positive inflationary backdrop is likely to be supporting a more accommodative monetary policy stance, further boosting economic growth.
From the farm sector, the report indicates that monsoon activity has been positive and stood at 15% above the long-term average as of July 9. This is good for farm production and rural consumption in the coming months.
The report also offers a commendable assessment of the central government's fiscal situation. The fiscal deficit has reduced marginally to 4.5% as of May 2025, from 4.6% in April, showing sustained fiscal discipline.
Moving to the foreign exchange market, BoB noted that the rupee depreciated just 0.2% in June after having fallen 1.3% in May. This relative calm was fueled by soothing geopolitical tensions and a softer US dollar, which triggered range-bound Indian currency trading in the second half of June.
In July, the rupee continues to trade with an appreciation bias notwithstanding continued concerns regarding US tariff policies. We foresee this trend to continue. Investors continue to be optimistic about the successful completion of India-US trade deal within the August 1 deadline that will further support the rupee," the report said.
Globally, though, the situation is still complex. Climbing tariff threats—both commodity and country-specific—are shattering the inflation-growth equilibrium. As per the report by the BoB, these events rekindled fears of inflation and were even mentioned in recent US Federal Reserve minutes as reasons for the delay in interest rate reductions. In this context, Indian markets can expect to still go through bouts of volatility, warned the report.
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