Economy Watch

Economy Watch October 2026 Highlights

• In September 2026, manufacturing and services PMI increased to 55.1 and 55.2, marking their highest levels in seven and three months, respectively.

• Overall IIP growth increased to 8.0% in August 2026 from 7.4% in July 2026 driven by strong growth in the output of manufacturing and electricity and gas supply.

• Reflecting sustained momentum in services sector activity, growth in the overall ISP strengthened to 13.5% in July 2026 from 13.2% in June 2026.

• CPI inflation increased to 5.5% in September 2026 from 4.8% in August 2026, mainly attributable to a spike in food inflation, owing partly to unfavourable base effects. Core CPI inflation edged up to 4.3% in September 2026 from 4.1% in August 2026 reflecting signs of widening price pressures.

• WPI inflation increased to 11.4% in September 2026, its highest level under the 2022-23 base series, from 9.9% in August 2026, with inflation strengthening across all three major groups, namely, primary articles, fuel and power, and manufactured products.

• The RBI MPC unanimously voted to increase the repo rate by 25 basis points to 5.50% in its October 2026 monetary policy review from 5.25%. It also changed the policy stance from neutral to calibrated tightening.

• GoI’s gross tax revenues (GTR) grew by only 6.5% during April-August FY27, with direct taxes growing by 13.4% but indirect taxes contracting by (-)2.7%.

• GoI’s total expenditure grew by 10.5% during April-August FY27, with growth in capital expenditure remaining buoyant at 18.2% and that in revenue expenditure limited to 8.2%.

• GoI’s fiscal and revenue deficits during April-August FY27 stood at 41.9% and 46.5% of their annual budgeted targets.

• Gross bank credit growth continued to expand at a healthy pace of 19.1% in August 2026, close to its level of 19.3% in July 2026.

• Net FDI and net FPI inflows were lower at US$3.3 billion and US$1.7 billion respectively in August 2026 compared with US$7.3 billion and US$4.1 billion in July 2026.

• Merchandise exports continued to grow at a robust pace of 23.0% in September 2026 compared to 26.1% in August 2026, led by petroleum products, electronic goods and engineering goods while merchandise imports growth moderated to a six-month low of 8.0%, nearly entirely on account of contraction in gold and silver imports.

• Merchandise trade deficit widened to US$30.2 billion in September 2026 from US$26.9 billion in August 2026.

• Global crude oil price, considering average of Brent, WTI Texas and Dubai (Fateh) reached a five-month high of US$102.3/bbl. in September 2026. By 23 October 2026, Brent crude price reached a level of US$117 as tensions in the Middle East intensified.

• The IMF has projected global growth at 3.1% in 2026 and 3.4% in 2027 with India’s FY27 and FY28 growth rates forecasted at 7.0% each.

• IMF’s October 2026 World Economic Outlook projects India’s medium term average growth covering the period FY27-32 at 6.9% in spite of continuing global headwinds placing India as the global growth leader among major economies.

• India’s merchandise trade imbalance is large and diverse. Its largest surplus is with the US and largest deficit with China. To bring better trade balance with partner countries, export diversification and import reduction strategies are required. With reference to the US, differential growth rates for exports at 10% and imports at 16% in the medium term upto 2031, covering both goods and services, will increase trade volume close to US$500 billion and reduce India’s trade surplus to about half of its 2025 level.