High-frequency indicators for February suggest that economic activity remains resilient. The impact of tax cuts on consumption demand is particularly visible in vehicle registrations, which have recorded strong growth for the fifth consecutive month.
Power demand has also remained strong, while Goods and Services Tax collections have picked up and continued to remain robust. Looking ahead, domestic demand is expected to remain healthy, supported by tax cuts, the lagged impact of monetary easing, and key trade agreements, particularly with the US and the European Union.
In addition, prospects of a good rabi harvest and relatively low inflation are likely to support rural demand. However, the report cautioned that recent geopolitical developments and supply chain disruptions could hamper growth in the near term.
The report noted that government finances remain in a comfortable position. Gross tax revenue growth remained healthy in January, led by a pick-up in corporate tax collections, with year-to-date revenue growth now exceeding budgeted levels.
At the same time, the government has maintained expenditure discipline. Year-to-date spending growth remains below budgeted levels, while capital expenditure growth has moderated after strong front-loading in the first half of the fiscal year. Revenue expenditure rose only 1.3% year-on-year during the first ten months of FY26.
India’s current account deficit (CAD) in the third quarter of FY26 stood at 1.3% of GDP, lower than 1.5% recorded in the previous quarter, largely due to a moderation in the trade deficit. However, the capital account registered a deficit of about $10 billion in Q3FY26, compared with a surplus of $2 billion in the previous quarter. Despite this, the deficit remained lower than the corresponding period last year.
Going forward, the report warned that the current account could face headwinds from the ongoing conflict in West Asia. However, strong growth in services exports is expected to keep the deficit within manageable levels.
The government has also revised the base year for the Consumer Price Index (CPI) series to 2023–24 from the earlier 2011–12 base year to better reflect changing consumption patterns. Under the revised series, the weight of food items has been reduced while that of core components has increased. According to the new series, CPI inflation rose to 2.8% year-on-year in January, compared with 1.3% in December under the earlier series, largely driven by higher food inflation.
Meanwhile, India’s trade deficit widened in January due to higher imports of gold and silver. The report cautioned that the trade deficit could remain under pressure if the West Asia conflict continues for an extended period. However, strong growth in services exports is expected to help keep the current account deficit within manageable levels.
Crude oil prices have been rising in recent months amid escalating tensions in West Asia. Oil prices increased 2.5% year-on-year in February after registering a 16% rise in January. Industrial metal prices, however, remain subdued due to concerns over weak global demand, particularly from China.