Economy on 'stable footing', well positioned to navigate emerging risks: FinMin

Monthly Economic Review, October 2025

Well anchored inflation expectations, sustained public capex, and firming up of rural and urban demand has placed India’s economy is on a "stable footing", positioned to navigate emerging risks and preserve its growth momentum through the remaining months of FY26, finance ministry’s Monthly Economic Review report for October 2025 said.

"The inflation outlook remains encouraging, supported by softening global commodity prices, benign energy markets, and targeted domestic supply interventions. However, the balance of risks warrants continued vigilance," said the report.

"Global uncertainties—including shifting trade policies, geopolitical frictions, and financial market volatility—pose potential headwinds to exports, capital flows, and investor sentiment," it said.

The MER cited independent economic assessments, and said that real GDP growth in Q2FY26 is likely to be in the range of 7-7.5 percent, "indicating continued strength in underlying economic activity." A Moneycontrol poll of 11 economists, published last week, projected Q2 FY26 growth at 7.3 percent.

The Reserve Bank of India (RBI) has projected the second quarter’s growth to be at 7 percent.

"The favourable impact of GST rationalisation is increasingly visible in consumption indicators, while robust agricultural activity—reflected in the strong onset of Rabi sowing and adequate reservoir levels—has reinforced the outlook for food supply and rural incomes," the MER said.

"Corporate performance remains healthy, with sustained profitability and stable balance sheets. Domestic financial markets continue to draw strength from firm institutional participation," it said.

Meanwhile, the external sector remains shaped by a complex global environment, although the persistent strength in services exports provides an important counterbalance to the volatility in merchandise trade, the report added.

On the trade front, the MER said that the external environment remains characterised by elevated trade policy uncertainty, though global pressures have moderated relative to earlier peaks. It added that India’s merchandise exports softened in October due to a surge in gold and silver imports, while services exports achieved their highest-ever monthly level, providing a substantial buffer to the merchandise trade deficit.

"Capital flows were mixed, with strong FDI inflows offsetting subdued portfolio activity; India’s foreign exchange reserves of $687 billion continued to provide a substantial buffer against external shocks," said the report.

The finance ministry said that the frontloading of trade orders in anticipation of higher tariffs has led to a significant increase in trade in 2025. “However, this positive trend is constrained by ongoing fragmentation, which is seen to limit potential gains.”

Furthermore, the actual effective tariff rates, defined as the duty paid on imports at customs as a percentage of the value of imports, have lagged behind the effective rate based on the announcements. “This delay is attributed to factors such as stockpiling, pauses in tariffs, trade diversion and rerouting,” noted the MER.

As a result, the IMF's World Economic Outlook, October 2025, projects that global trade volume (goods & services) will grow at an average rate of 3.6 per cent during CY 2025 and then decrease to 2.3 per cent in CY 2026, which is markedly lower than the 3.5 per cent growth recorded in CY 2024.

On the implementation of new labour codes, the MER said that this historic move modernises labour regulations, moving beyond colonial-era structures, improves workers' welfare, and aligns the labour ecosystem with the changing world of work. “It lays the groundwork for a future-ready workforce and stronger, resilient industries, supporting labour reforms for Viksit Bharat at 2047.”

On November 21st, the labour ministry issued notifications implementing the four labour codes, which consolidated 29 earlier legislations. The four codes are: Code on Wages, 2019; Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020.