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ARTHA

prospects. Additionally, China’s industrial overcapacity strong capital adequacy, liquidity, asset quality, and lower
continues to transmit disinflationary spillovers across NPAs, while the NBFCs are also showing improved resilience.
global value chains, including India, reinforcing the benign Bank credit growth, though moderating from last year,
trajectory of core inflation. remains healthy and supportive of real activity. Notably, as
per the RBI, total resource flows from non-bank sources to
the commercial sector have risen by Rs 2.66 lakh crore in
- Good monsoons: The south-west monsoon ended with 2025–26 so far, more than offsetting the Rs 0.48 lakh crore
108.0 per cent above LPA rainfall, which was slightly decline in non-food bank credit.
higher than IMD’s prediction of 106.0 per cent. Coupled
with healthy reservoir levels and adequate food buffer
stock, rural demand is expected to remain healthy this
year. Real rural wages, too, had turned positive in July Diversification of Exports Market
after a long gap, supporting farm incomes.
To counter the impact of the US high tariffs, India has
diversified its export markets to countries like China, Hong
Continued Thrust on Public Capex Kong, Italy, the Netherlands, South Africa, and the UAE as is
evident from the merchandise exports data for August. After
the front-loading of exports to the US market before the
Government expenditure during the first five months of tariffs took effect, which saw its exports to the US rising
FY26 stood at Rs 18.8 lakh crore, marking a 14.0 per cent sharply at an average of 21.0 per cent in the period April-July
year-on-year increase from Rs 17 lakh crore in the 2025, growth dipped to 7.0 per cent in August.
corresponding period last year. The expansion was primarily
driven by sustained momentum in capital outlays, with However, as export growth to the US slowed down in August,
government capex rising sharply by 43.0 per cent exports to China climbed by 22.4 per cent, while shipments
year-on-year to Rs 4.3 lakh crore during April–August FY26, to the Netherlands rose by 17.9 per cent. Exports to the UAE
and more than doubling (up 113.0 per cent) in August jumped by 23.4 per cent while shipments to Hong Kong saw
alone. This robust public capex push has been a key factor a remarkable surge of 62.7 per cent. Other notable gains
underpinning the strong first-quarter GDP growth came from Italy, where imports of Indian goods rose by 15.7
performance, with government final consumption per cent. Exports to South Africa also rose by 19.7 per cent
expenditure growing by 7.4 per cent and the ‘Public on an annual basis.
Administration, Defence and Other Services’ segment, a
proxy for public spending on the supply side, expanding by
9.8 per cent in Q1FY26. The sustained fiscal impulse
through higher infrastructure spending continues to provide Merchandise Exports Growth (y-o-y%)
a vital thrust to aggregate demand and investment activity.
80.0
60.0 Hong Kong
SAR
Easy Financial Conditions 40.0 China
20.0 Unitd Arab
System liquidity, as measured by the net position under the Emirates
Liquidity Adjustment Facility (LAF), stood at an average 0.0 Netherland
daily surplus of Rs 2.1 lakh crore since August 2025. Going -20.0 US
ahead, the drawdown of government cash balances and the -40.0
remaining 75 basis points cut in the cash reserve ratio
(CRR) during October-November will aid banking system -60.0
liquidity in the near-term. Adequate liquidity in the system Apr-25 May-25 Jun-25 Jul-25
and the remaining CRR cuts will further facilitate monetary
transmission. Improved monetary transmission is expected
to facilitate lower money market rates. Source: Ministry of Commerce

Financial Stability Additionally, the implementation of several growth-inducing
structural reforms is expected to offset some of the adverse
A stable and well-capitalised financial system is a effects of external headwinds. Coupled with the thrust from
pre-requisite for anchoring growth impulses. Encouragingly, the two demand-drivers of growth- Consumption &
our financial system is stable and continues to support Investment- this has driven an upgrade of our real GDP
growth, with Scheduled Commercial Banks maintaining growth forecasts for the current year.

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