Indian Economy

India’s external sector remains supported by resilient services exports, strong foreign exchange reserves, and diversified trade linkages, even as rising crude oil prices and West Asia disruptions increase near-term risks. During April–February FY26, total exports of goods and services grew by 5.8 per cent year-on-year to US$ 790.9 billion. Merchandise exports grew modestly by 1.8 per cent, while non-petroleum, non-gems and jewellery exports increased by 5.7 per cent, led by strong growth in electronic goods exports. Services exports remained the key strength of the external sector, rising by 10.2 per cent to US$ 387.9 billion and generating a net services surplus of US$ 201 billion, covering 64.7 per cent of the merchandise trade deficit. Total imports rose by 7.4 per cent to US$ 900.5 billion, resulting in a total trade deficit of US$ 109.7 billion. India’s foreign exchange reserves remained comfortable at US$ 709.8 billion as of 13 March 2026, providing over 11 months of import cover and covering around 95 per cent of external debt outstanding, strengthening resilience against global volatility.

Domestic financial conditions remain supportive, backed by strong bank credit growth, adequate liquidity buffers, and improving labour market conditions. As of 28 February 2026, bank credit growth stood at 14.5 per cent year-on-year compared with 11.1 per cent a year earlier, while the overall flow of financial resources to the commercial sector rose by 33.2 per cent year-on-year to Rs. 39.2 lakh crore. Credit to MSMEs remained particularly strong, with MSME credit growing by 28.5 per cent and micro and small enterprise credit increasing by 31.2 per cent in January 2026. Labour market indicators also reflect continued improvement. The labour force participation rate remained stable at 55.9 per cent in February 2026, while the unemployment rate moderated to 4.9 per cent from 5.0 per cent in January. White-collar hiring remained strong, with the Naukri JobSpeak Index rising 12 per cent year-on-year in February 2026, supported by robust hiring across insurance, BPO/ITES, real estate, hospitality and retail sectors. These trends, supported by policy measures and continued structural reforms, reinforce confidence in India’s medium-term growth outlook despite elevated global uncertainty.

In FY26, the following key indicators highlighted improved performances:

• Retail inflation rebounded further in February 2026, with headline CPI rising to a 10-month high of 3.21 per cent from 2.74 per cent in January 2026, largely driven by food inflation. Food inflation accelerated from 2.11 per cent to 3.35 per cent, reflecting rising prices in fruits, edible oils, animal proteins and vegetables, while inflation remained moderate across most other categories. This kept overall inflation within the RBI’s target tolerance band of 4 per cent ± 2 per cent.
• Inflation across major CPI divisions remained broadly stable, with the highest inflation continuing in personal care, social protection and miscellaneous goods and services at 19.64 per cent, mainly due to elevated gold and silver prices. Transport inflation remained subdued at (-)0.05 per cent, while housing, utilities and household maintenance categories also showed contained price pressures, indicating limited broad-based inflationary stress outside food and precious metals.
• Agricultural supply conditions remained favourable, supporting food price stability over the medium term. Wheat acreage during Rabi 2026 increased to 334.17 lakh hectares, while pulses cultivation in the summer season also expanded. Rice stocks stood at nearly 12 times the buffer norm and wheat stocks were nearly double the prescribed buffer norm as of January 1, 2026, providing strong supply-side support against inflationary pressures despite rising global crude oil risks.
• During April–February FY26, India’s total exports of goods and services grew by 5.8 per cent year-on-year to US$ 790.9 billion. Services exports remained the key driver, rising by 10.2 per cent to US$ 387.9 billion and generating a net services surplus of US$ 201 billion, which covered 64.7 per cent of the merchandise trade deficit. This continued strength in services exports helped support India’s external sector resilience amid global trade uncertainty.
• During April–January FY26, gross Foreign Direct Investment (FDI) inflows increased to US$ 79.3 billion from US$ 69.2 billion in the corresponding period of the previous year. However, elevated repatriation by foreign investors at US$ 49.5 billion and higher outward investment by Indian firms at US$ 28.1 billion kept net FDI subdued at US$ 1.7 billion, reflecting continued investor interest alongside cautious global capital flows.
• India’s foreign exchange reserves stood at US$ 709.8 billion for the week ending 13 March 2026, providing over 11 months of import cover and covering around 95 per cent of external debt outstanding as of end-September 2025. These reserves continue to serve as a strong macroeconomic buffer, supporting exchange rate stability and strengthening resilience against global external shocks.
• The Indian rupee closed at Rs. 93.88 per US dollar on 24 March 2026, reflecting a depreciation of 9 per cent during FY26 and 3.1 per cent since the beginning of the West Asia conflict. Elevated crude oil prices, geopolitical tensions, shipping disruptions and global risk aversion have increased pressure on the external balance and contributed to depreciation in the domestic currency.
• Overall bank credit growth strengthened further during FY26, with total bank credit standing at 14.5 per cent year-on-year as of 28 February 2026, compared with 11.1 per cent in the corresponding period of the previous year. Non-food credit growth remained robust at 14.4 per cent, while services sector credit recorded the highest growth at 15.5 per cent, indicating strong lending momentum across productive sectors of the economy.
• Bank credit to the MSME sector continued to show strong momentum, rising by 28.5 per cent year-on-year in January 2026 compared with 12.2 per cent in January 2025. Within this, credit extended to micro and small enterprises increased by 31.2 per cent year-on-year, up from 9.6 per cent a year earlier, reflecting stronger formal credit access and sustained support for entrepreneurial activity and small businesses.
• The total flow of financial resources to the commercial sector increased significantly to Rs. 39.2 lakh crore (US$ 458.6 billion) as of 28 February 2026, registering a 33.2 per cent year-on-year increase compared with the previous year. Alongside strong bank credit growth, corporate bond issuances and external commercial borrowings also contributed to improved credit availability for commercial activity.
• Digital payment activity remained strong, reflecting sustained transaction intensity and resilient consumption demand across the economy. In February 2026, digital payments volume increased by 26.6 per cent year-on-year, while broader high-frequency indicators continued to show stable demand conditions despite rising global uncertainty and supply-side pressures.
• Rural demand conditions remained resilient, supported by strong agricultural activity and improving farm sentiment. Rural auto retail sales expanded by 25.2 per cent year-on-year in February 2026, led by robust growth in tractors, two-wheelers and commercial vehicles, reflecting stronger rural consumption supported by favourable crop conditions and sustained agricultural demand.
• Merchandise imports increased sharply by 19.2 per cent year-on-year in January 2026, driven largely by a significant rise in precious metal imports. Gold imports surged by 349.2 per cent while silver imports increased by 127 per cent year-on-year, supported by elevated global prices, which rose by 75.4 per cent for gold and 202.7 per cent for silver, leading to a wider merchandise trade deficit during the month.
• India has accelerated its trade diversification strategy through renewed focus on free trade agreements aimed at improving market access and strengthening participation in global value chains. This includes the signing of the India–Oman CEPA in December 2025, progress in negotiations for the India–EU FTA, the India–US framework for an Interim Agreement on reciprocal and mutually beneficial trade, along with continued negotiations with New Zealand, Chile and Peru.
• Foreign Portfolio Investment (FPI) flows witnessed a turnaround in February 2026, with net inflows of around US$ 4 billion (till February 24, 2026) after recording net outflows in December 2025 and January 2026. The recovery was broad-based, with both equity and debt segments registering positive flows, indicating some easing in global investor risk aversion.
• High-frequency labour market indicators reflected stable hiring conditions, with the Naukri JobSpeak Index rising by 3 per cent year-on-year in January 2026. The growth was driven mainly by non-IT sectors such as BPO/ITES (+21 per cent), hospitality and travel (+15 per cent), insurance (+7 per cent), and healthcare (+5 per cent), while fresher hiring also increased by 8 per cent, signalling broader employment expansion.
• Labour market conditions are expected to strengthen further, supported by sector-focused employment initiatives and skill development measures announced in the Union Budget 2026–27. The Budget focuses on employment generation across agriculture, textiles, healthcare, tourism, sports, care economy and creative industries, while also strengthening skilling pathways through healthcare training, tourism skilling, sports talent development, and the proposed High-Powered Education to Employment and Enterprise Standing Committee.

Rural and urban inflation remained closely aligned in January 2026, with rural inflation at 2.89 per cent and urban inflation at 2.48 per cent, indicating broad-based price stability across regions. Taking note of the benign inflation outlook and balanced macroeconomic conditions, the Monetary Policy Committee, in its February 2026 meeting, kept the policy repo rate unchanged at 5.25 per cent while continuing with a neutral stance. The RBI projected CPI inflation for FY26 at 2.6 per cent, supported by favourable agricultural output, easing food prices and stable core inflation, although some gradual firming is expected in the coming quarters as demand conditions strengthen.

Labour market indicators continued to show steady improvement, supported by rising labour force participation and continued employment generation. According to the latest Periodic Labour Force Survey (PLFS) for Q3 FY26 (October–December 2025), average employment increased to 57.4 crore persons from 56.2 crore in Q2 FY26, indicating continued worker absorption across sectors. Of the total employed population aged 15 years and above, 40.2 crore were male and 17.2 crore were female. Labour force participation also remained stable, while the unemployment rate moderated, reflecting improving labour market conditions and sustained economic activity.

High-frequency labour indicators point to continued hiring momentum in the economy. According to the Naukri JobSpeak Index, white-collar hiring increased by 3 per cent year-on-year in January 2026, indicating stable recruitment trends at the start of the year. The hiring expansion was driven mainly by non-IT sectors, with BPO/ITES recording 21 per cent growth, followed by hospitality and travel (15 per cent), insurance (7 per cent), and healthcare (5 per cent). Fresher hiring also increased by 8 per cent, signalling stronger demand for entry-level talent and broader workforce expansion across sectors.

These trends are further supported by broader policy initiatives aimed at strengthening workforce participation and employability. The Union Budget 2026–27 adopts a sector-focused employment strategy covering labour-intensive manufacturing such as textiles, agriculture and animal husbandry, tourism, healthcare, sports, care economy and the creative economy. Alongside this, expanded skilling initiatives—including structured tourism skilling, allied healthcare training, caregiver development, sports talent pathways, and the proposed High-Powered Education to Employment and Enterprise Standing Committee—are designed to align workforce capabilities with evolving industry needs. Together with continued investments in education, healthcare and human capital development, these measures are expected to improve labour productivity, expand employment opportunities and support inclusive long-term growth.