India’s growth momentum strong, but global risks mount: Finance Ministry flags oil, yields and capital…

Reports coming in for today mention that India’s economy is likely to grow 7.3 percent in the second quarter of FY27, according to the Finance Ministry’s nowcasting model, even as the government cautioned that expansion momentum has moderated and rising geopolitical, trade and financial risks could weigh on the outlook.

“Expansion momentum has extended into Q2 FY27, though at a more measured pace,” the Finance Ministry stated in its September Monthly Economic Review. E-way bill generation and manufacturing PMI have expanded more slowly, while services activity strengthened in August on the back of elevated new business and employment, it noted

The ministry’s nowcasting measure, first unveiled in the Economic Survey earlier this year, anticipates real GROSS DOMESTIC PRODUCT expansion of 7.3 percent in Q2 FY27, following 7.8 percent expansion in the April-June quarter.

High-frequency indicators for July and August revealed some moderation after the firm first quarter

US trade uncertainty stays a key risk

The ministry struck a considerably more wary tone on the external environment, warning that India’s trade relationship with the United States stays unsettled.

The Monthly Economic Review cited the passage of the Graham Bill through the US Congress and its presidential assent, saying it empowers the US President to impose tariffs of up to 100 percent on countries purchasing Russian oil.

At the same time, the ministry stated the global artificial intelligence investment boom continued to influence cross-border capital flows, while developed economies were increasingly competing for investment as they pursued new manufacturing capacity.

“India, as do other developing nations, faces a stiff challenge to attract capital flows,” the review stated.

The ministry, that stated, anticipates net foreign direct investment to perform better this financial year than in FY26. Net FDI inflows rose to $13.4 billion during April-July 2026 from $9.7 billion in the corresponding period a year ago, while gross FDI inflows stood at $43.9 billion.

“Investor interest in India is not low but wary,” the ministry stated, pointing to uncertainty over India-US trade relations, tariff pressures, oil price marks and supply, and what it described as the absence of an “India-angle” to global AI-related investment developments.

The Finance Ministry additionally flagged upside risks to inflation from climate conditions, geopolitics and monetary tightening.

“A firm El Niño event could pose risks to the upcoming Rabi crop through heat stress and reduced soil moisture,” it stated, although a positive Indian Ocean Dipole could partially offset the impact. Elevated oil price marks and geopolitical tensions could add to imported inflation pressures.

Festive demand and elevated input costs may additionally add near-term pressure to prices, although supply-side interventions by the government could soften temporary price increases, it noted.

Retail inflation rose to 4.82 percent in August, while food inflation stood at 5.95 percent and core inflation increased to 4.16 percent from 3.86 percent in July. Wholesale inflation advanced to 9.92 percent in August.

‘Expansion has to be earned every quarter’

The report warned that India could not rely on its firm post-pandemic performance as global economic conditions became more challenging.

“India cannot afford to take its expansion performance for granted,” the ministry stated, adding that geopolitical polarisation and the “weaponisation” of supply chains were intensifying.

Supply shocks were beginning to emerge across energy, metals, electronics, food and semiconductors, while elevated inflation from these disruptions could restrain expansion. Rising interest rates in developed economies could additionally spill over into Indian bond yields and slow cross-border capital flows, it stated.

Foreign exchange reserves have remained a substantial buffer, standing at $765.9 billion as of September 18, equivalent to around 11.1 months of imports.

Competitive pressure-friendly, not just business-friendly

The ministry additionally used the report to make a broader policy argument, saying India needed to focus on increasing competitive pressure rather than merely improving the environment for individual businesses.

“India must work on ensuring that the economy is more competitive pressure-friendly rather than business-friendly. Only a competitive economy will become a successful, innovative, and manufacturing economy,” it stated.

Improved governance and stronger state capacity at all marks of government would be critical to achieving this, the ministry further noted.