Finance ministry sees Q2 FY27 GDP growth at 7.3%, flags trade, crude and AI risks

New Delhi: The finance ministry has projected a 7.3% increase in gross domestic product (GDP) in the quarter to September quarter, higher than the 6.4% forecast by the Reserve Bank of India (RBI).

It cautioned, though, that India, like other developing nations, faces a stiff challenge in attracting capital flows as near-term uncertainties over US trade relations, crude price surges and the "absence of an India angle" to global artificial intelligence (AI)-related developments weigh on its investment attractiveness. "Growth momentum has extended into Q2 FY27, though at a more measured pace... Our nowcasting measure, unveiled in the Economic Survey earlier this year, anticipates a real GDP growth rate of 7.3% in the fiscal second quarter," the finance ministry said in its Monthly Economic Review (MER) for September.

However, it warned that India "cannot afford to rest on its post-Covid growth laurels" due to the geopolitical and geoeconomic uncertainty that plagues the world. "It has to be earned every quarter. That is the challenge for policymakers," it said. According to the report, there are indications that net foreign direct investment inflows will surpass last year's figures. "Thus, short-term pressure on Indian assets, including the currency, remains," it said, adding that the high-frequency indicators for July-August suggest some moderation in the pace of economic activity following the strong 7.8% GDP growth in the first quarter.

Cautious investor interest

Stating that the domestic economy continues to display resilience in a challenging global environment, the ministry said, "It is a big strength in an otherwise difficult global situation... For now, investor interest in India is not low but cautious." Near-term uncertainties pertaining to the state of the trade relationship with the US, tariff pressures, uncertainty with respect to crude oil prices and supply, and the absence of an India-angle to AI-related global developments cast a shadow on India as an attractive investment destination.

"Over time, as some of these clouds inevitably dissipate, India's intrinsic growth potential will earn the attention it deserves from investors," the report said, adding that the country must keep working to become more competition-friendly, rather than business-friendly, as only a competitive economy will become a successful, innovative and manufacturing economy.