India’s economy could grow 7.35% in Q2 FY27: What Finance Ministry model estimates

However, the 7.35% figure is a model-based estimate, not the official GDP growth rate for the quarter. The ministry assessed economic activity using high-frequency indicators such as electricity and fuel consumption, automobile sales, goods movement, GST collections, industrial production and bank credit. India’s growth outlook also compares favourably with that of several major economies. The International Monetary Fund (IMF) raised its FY27 growth forecast for India to 7% in October 2026.

The World Bank, the Organisation for Economic Co-operation and Development (OECD) and the Reserve Bank of India (RBI) have projected growth of 7.1% for the financial year. However, rising crude oil prices, higher food inflation, uncertainty over the Kharif crop and global trade disruptions remain risks. The October review said sustaining economic activity while protecting price stability would be a key priority for policymakers.

What does Finance Ministry’s 7.35% GDP growth estimate mean? The estimate offers an early assessment of India’s economic performance in Q2 FY27, before official GDP data become available. A nowcasting model uses indicators released during a quarter to estimate economic activity in near real time. The Finance Ministry’s Economic Division uses a model introduced in the Economic Survey 2025-26. Its latest estimate suggests that growth remained strong in the second quarter, although it was 0.45 percentage points lower than the 7.8% recorded in Q1 FY27.

Quarterly growth can vary with changes in consumer spending, investment, production and activity across sectors. The official GDP estimate will provide a more comprehensive assessment. Several indicators supported the ministry’s assessment. Gross GST collections grew by around 15% year-on-year in Q2 FY27, compared with about 8.4% in Q1. E-way bill generation, which tracks the movement of goods, increased by 7%, although its growth slowed from the previous quarter.

Energy consumption also remained strong. Fuel consumption grew by 7.9% year-on-year in Q2 FY27, compared with 3.7% in Q1. Electricity consumption rose by 11.1%, up from 8.3% in the previous quarter. These figures point to continued demand from households, businesses and industry. Logistics activity provided further support. Port cargo traffic grew by 10% year-on-year in Q2 FY27, compared with 6.2% in Q1.

Air cargo traffic increased by 11.6%, although the review’s data for the quarter covered the period only up to August. Bank lending also remained strong. Overall bank credit grew by 21.6% year-on-year as of September 30, 2026. Credit can support business expansion, working capital and household spending, although lending growth alone does not establish how much additional economic output it will generate.

Together, these indicators suggest that economic activity remained firm across several areas during the quarter, supporting the ministry’s 7.35% estimate. Which sectors supported growth and what risks remain? Industrial production was among the strongest indicators. The Index of Industrial Production (IIP) grew by 8% year-on-year in August 2026, compared with 7.4% in July. Manufacturing expanded by 9%, while electricity and gas supply grew by 12.3%.

Mining and quarrying, however, contracted by 5.6%. The report said 18 of the 23 manufacturing industry groups recorded growth in August. Electrical equipment, other transport equipment and motor vehicles, trailers and semi-trailers helped drive the expansion. Infographic generated using AI Production also strengthened in investment-linked categories. Capital goods output rose by 16.9% year-on-year in August, while intermediate goods grew by 13.7%.

Infrastructure and construction goods increased by 6.4%. Consumer durables rose by 11.1%, while consumer non-durables grew by 2.1%. Growth in core industries accelerated in September. The Index of Core Industries, which tracks eight key infrastructure sectors, grew by a provisional 7.9% year-on-year, compared with 5.9% in August. Iron ore, electricity, coal, refinery products, cement and steel recorded growth, while fertilisers, natural gas and crude oil contracted.

Manufacturing surveys also pointed to stronger activity towards the end of the quarter. The HSBC India Manufacturing Purchasing Managers’ Index (PMI) rose to 55.1 in September from 52.8 in August. A reading above 50 indicates expansion. The improvement reflected stronger growth in new orders and output, while manufacturing employment returned to growth after declining in August. The services sector remained in expansion, although its PMI softened during Q2.

Both manufacturing and services surveys strengthened in September, suggesting that business activity improved towards the end of the quarter. Consumer demand provided another source of support. Domestic automobile sales grew by around 25% year-on-year in Q2 FY27, with gains across vehicle segments and in rural and urban markets. The review cautioned that a favourable base effect partly boosted the increase because some purchases had been deferred in August and September 2025 ahead of expected GST rate cuts.

Longer-term manufacturing and investment data also point to expansion. The Annual Survey of Industries for 2024-25 found that gross value added in registered manufacturing rose by 9.59%, fixed capital increased by 10.54% and the number of people engaged in the sector grew by 7.19%. Investment activity remained firm as well. Banks and financial institutions sanctioned 1,032 projects worth a combined Rs 4.4 lakh crore in FY26, compared with 907 projects worth Rs 3.7 lakh crore in the previous year.

Infrastructure accounted for 54.2% of the total project cost. The review estimated that private corporate capital expenditure from the project pipeline could reach Rs 3.2 lakh crore in FY27, up from Rs 2.6 lakh crore in FY26. Despite these positive indicators, inflation remains a concern. Consumer price index inflation rose to 5.54% in September 2026 from 4.83% in August. Food inflation climbed to 7.74%, while core inflation increased to 4.33%.

Average retail inflation in Q2 FY27 stood at 4.94%, in line with the RBI’s October forecast. Higher crude oil prices could add to pressure by raising fuel, transport and industrial input costs. Food prices also remain vulnerable to crop conditions, rainfall and supply disruptions. The review reported that all-India rainfall was 13% below the long-period average between June 1 and September 30, 2026.

Kharif sowing was also lower than a year earlier for some crops. Global conditions pose further risks. The review said the conflict in West Asia had raised energy prices and renewed inflationary pressures in major economies. A prolonged conflict could keep energy and food prices elevated, while renewed trade tensions and weather disruptions could weigh on global growth. Crude, drought or both? India’s external sector has shown resilience, but higher import costs remain a concern.

Total merchandise and services exports grew by 11% year-on-year in September, led by a 23.1% increase in merchandise exports. The overall trade deficit narrowed during the month, supported by a steady services surplus. Foreign exchange reserves stood at $721 billion as of October 16, 2026. The Finance Ministry’s assessment is therefore positive but cautious. Strong domestic demand, industrial activity, tax collections and investment have supported growth, while inflation and external uncertainty remain potential headwinds.

The 7.35% nowcast suggests that India retained strong economic momentum in Q2 FY27, following 7.8% growth in the previous quarter. Whether that pace is sustained will depend on domestic demand, investment and industrial activity, as well as how inflation and global risks evolve.