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India's economy has remained resilient despite the ongoing Middle East crisis and broader global uncertainties, supported by strong services activity, industrial growth, exports, bank credit expansion and a recovery in public capital expenditure, according to a report by Ernst & Young (EY).
The report said recent high-frequency indicators suggest domestic growth momentum remained intact during the first quarter of FY27 even as geopolitical developments weighed on the global economic environment. "Utilizing available information, we consider India's 1QFY27 growth prospects to be quite robust in spite of the crisis in Middle East," the report said. According to EY, the Centre's capital expenditure grew 13.4 per cent during April-May FY27, recovering after slowing to 1.6 per cent in FY26. Total government expenditure rose 18.1 per cent during the period, while the Centre's revenue account remained in surplus, supported by higher dividend transfers and strong direct tax collections. The fiscal deficit accounted for 9.6 per cent of the annual Budget target during the first two months of the fiscal year. The report noted that India's manufacturing and services sectors continued to expand in June, with the Purchasing Managers' Index (PMI) for manufacturing at 54.2 and services at 57.4, indicating sustained business activity despite moderating from previous months. Industrial production also remained firm, while the newly introduced Index of Services Production recorded 20.8 per cent growth in April, reflecting robust performance across key service sectors. Industrial production also remained firm during the opening months of FY27. Financial indicators also pointed to continued economic strength. Gross bank credit growth accelerated to a 24-month high of 17.7 per cent in May, reflecting healthy lending activity across sectors. Merchandise exports rose 15.5 per cent in June, although imports grew at a faster pace of 31 per cent, widening the merchandise trade deficit to USD 30.4 billion. At the same time, EY flagged renewed inflationary pressures. Consumer price inflation increased to 4.4 per cent in June, crossing the Reserve Bank of India's 4 per cent target for the first time in 17 months, driven mainly by higher food and fuel prices. Wholesale price inflation also edged up to 9.9 per cent, reflecting elevated input costs for mineral oils, food articles, basic metals, chemicals, fuel and power. The report also noted that net foreign direct investment (FDI) recorded an outflow of USD 0.1 billion in May, the first monthly outflow since December 2025, while net foreign portfolio investment (FPI) outflows eased to USD 4.7 billion from USD 7.3 billion in April. Despite these challenges, EY said resilient domestic demand, expanding services activity, improving public investment and strong credit growth are expected to continue supporting India's economic momentum even as global risks remain elevated. (ANI)
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