India’s industrial growth eased to a four-month low of 6.7% in September from a downwardly revised 7.8% in August, as growth moderated across sectors. Factory output had grown 6.1% in September last year. Growth in manufacturing, which accounts for 76% of the total weight of the Index of Industrial Production, moderated to 7.6% in September from 8.6% a month earlier, also marking a four-month low.

Output in the mining and quarrying sector contracted 6.2% in September, compared with a 4.6% decline a month earlier. This was the steepest year-on-year contraction in the sector under the new IIP series, which has data from April 2024. The sector recorded a contraction for the eighth time in nine months, reflecting declines in crude oil and natural gas output in September.

Electricity and gas supply grew at a double-digit rate for the second consecutive month in September, although growth eased to 11.2% from 12.3% a month earlier.

Among the use-based sectors, capital goods and intermediate goods output grew at double-digit rates in September. Capital goods output rose 10.4%, marking the sixth consecutive month of double-digit growth. Growth in intermediate goods slowed to 12.2% from 14.2% a month earlier.

Data pointed to a moderation in consumption demand, with growth in consumer durables output moderating to 6.0% from 10.5% a month earlier. Consumer non-durables output grew just 1.4%, following a contraction of 1.1% in August.

 

The government’s fiscal deficit rose 24.7% year-on-year to ₹7.14 trillion in April-September, accounting for 42.1% of the full-year Budget target of ₹16.96 trillion, compared with 36.5% in the corresponding period last year. The increase in fiscal deficit was primarily attributable to slower growth in net tax revenue and faster growth in revenue expenditure during the first half of the financial year.

The government’s net tax revenue grew 3.8% year-on-year to ₹12.76 trillion in April-September, compared with the 9.3% growth projected for the full financial year. Revenue expenditure rose 10.0% to ₹18.95 trillion during the period, compared with the 7.5% growth projected in the Budget. Capital expenditure increased 12.7% to ₹6.55 trillion.

The government’s total receipts grew 6.1% year-on-year to ₹18.35 trillion in April-September, while total expenditure increased 10.7% to ₹25.50 trillion. The Budget had projected total receipts and expenditure to grow 7.8% and 9.0%, respectively, during the year.

The government recorded a fiscal deficit of ₹42 billion in September, compared with a fiscal surplus of ₹250 billion a year earlier. September is generally a favourable month for government finances, as companies pay the second instalment of corporate tax, accounting for roughly 30% of their annual corporate tax liability.

Despite the likelihood of higher disinvestment proceeds this year, the fiscal deficit may come under pressure if spending on fertiliser and petroleum subsidies rises because of the war in West Asia.

 

The government’s gross tax collections rose 5.1% year-on-year to ₹5.48 trillion in September, primarily driven by a 26.8% increase in corporate tax collections to ₹3.01 trillion. Tax collections in September tend to be higher than most months as companies pay the second instalment of corporate advance tax during the month, accounting for roughly 30% of the annual corporate tax liability.

Excluding corporate tax, collections from most other major taxes, including income tax, goods and services tax, excise duty and customs duty, declined year-on-year in September. Direct tax collections rose 13.2% to ₹4.43 trillion in September, while indirect tax collections declined 19.1% to ₹1.05 trillion.

Gross tax collections in April-September, the first half of 2026-27, rose 6.1% year-on-year to ₹19.80 trillion, led by a 14.1% increase in direct tax collections to ₹12.37 trillion. Within direct taxes, corporate tax collections rose 21.2% to ₹5.66 trillion, while income tax collections increased 6.7% to ₹6.31 trillion.

Indirect tax collections in April-September declined 4.9% year-on-year to ₹7.43 trillion, primarily due to the reduction in GST rates in September last year and the sharp cut in excise duty on petrol and diesel in March to shield consumers from rising crude oil prices.

GST collections fell 5.5% to ₹5.04 trillion, while excise duty collections declined 22.3% to ₹1.08 trillion in April-September. Customs duty collections rose 16.5% to ₹1.25 trillion during the first half of the financial year. The government had raised customs duties on gold and silver in May to discourage precious metal imports.

The government may struggle to meet its tax collection target for the year. Tax collections will need to grow only 12.3% year-on-year in the second half of 2026-27 to meet the Budget target of ₹44.04 trillion. Achieving this may be challenging given the cuts in GST rates and excise duty on petrol and diesel.

Domestic air passenger traffic contracted for the fourth consecutive month in September, amid disruptions linked to the war in West Asia and higher airfares following the sharp rise in crude oil prices. Passenger traffic declined 6.5% year-on-year to 11.82 million in September. It was the sixth year-on-year decline in domestic passenger traffic in seven months. Passenger traffic in September was at its lowest level in 46 months.

IndiGo, which accounts for about 65% of the domestic passenger market, carried 7.73 million passengers in September, down 4.9% from a year earlier. The Air India Group carried 3.17 million passengers, down 8.7% year-on-year. The continued contraction raises questions about the resilience of air travel demand despite robust GDP growth.

Electricity generation from renewable sources other than large hydroelectric projects rose 22.8% year-on-year to 32.01 billion units in September, driven by a sharp increase in solar power generation. Solar power output rose 48.8% year-on-year to 20.18 billion units. Electricity generation from large hydroelectric projects fell 16.4% to 18.66 billion units. Total renewable energy generation, including output from large hydroelectric projects, rose 4.7% to 50.67 billion units in September.

Total electricity generation in the country, including generation from thermal and nuclear power, rose 12.7% to 175.57 billion units in September. Renewable sources, including large hydroelectric generation, accounted for 28.9% of total electricity output, down from 31.0% a year earlier.

Growth in non-food bank credit accelerated as of September 30, reflecting stronger lending across most sectors. Growth in non-food bank credit rose to 19.1% year-on-year from 18.8% a month earlier and 11.2% a year ago. Growth in credit to industry accelerated to 19.5% from 18.2% a month earlier, while growth in credit to services increased to 28.3% from 24.3%. Growth in personal loans, which account for roughly one-third of total non-food credit, accelerated to 17.3% from 16.9% a month earlier. Growth in agricultural credit also picked up, rising to 19.5% from 17.2%.

Lending rates on new loans fell in September, driven by a sharp decline in rates charged by foreign banks. The weighted average lending rate on fresh rupee loans of scheduled commercial banks declined by 10 basis points month-on-month to 8.51% in September. The average lending rate on fresh rupee loans of foreign banks declined 22 basis points to 7.76%, while the rate charged by public sector banks fell by 6 basis points to 7.93%. Meanwhile, the average lending rate on fresh rupee loans of private sector banks remained unchanged at 9.19%.

The weighted average lending rate on outstanding rupee loans of scheduled commercial banks remained unchanged month-on-month at 8.96% in September. The weighted average rate on fresh term deposits declined by 6 basis points to 5.61%.

Since the start of the monetary easing cycle in February 2025, the weighted average lending rate on fresh rupee loans has declined by 82 basis points, compared with a cumulative 125-basis-point in reduction in the policy repo rate. Over the same period, the weighted average rate on fresh term deposits fell by 101 basis points.

 

Inflation rate based on the CPI for Industrial Workers rose to a more than three-year high of 5.57% in September from 4.96% a month earlier, primarily due to an increase in food and beverage prices. The increase was in line with the rise in the more closely watched CPI Combined, which reached a 23-month high of 5.54% in September.

Government-held food grain stocks declined but remained elevated by historical standards. Total food grain stocks, including unmilled paddy, stood at 101.79 million tonnes on October 1, down from 107.65 million tonnes a month earlier but still the highest on record for the date. Rice stocks stood at 37.76 million tonnes, the highest on record for the period, while wheat stocks were at 46.32 million tonnes, their highest level for October 1 in five years. The government also held 26.43 million tonnes of unmilled paddy, equivalent to about 17.17 million tonnes of rice. Record stocks will provide a cushion against a possible decline in production following deficient southwest monsoon rainfall this year.

India’s services trade surplus rose to a six-month high of $19.21 billion in September from $16.64 billion a month earlier. Services exports increased 7.2% year-on-year to $39.31 billion, while imports rose 12.6% to $20.10 billion. The overall trade deficit, including both merchandise and services trade, widened to $11.00 billion in September from $10.22 billion a month earlier.

 

External commercial borrowings by Indian companies rose to a 17-month high of $8.13 billion in August from $7.70 billion in July and $3.27 billion a year earlier. External commercial borrowings have risen since the Reserve Bank of India announced a concessional forex swap scheme for public sector companies. State-owned Power Finance Corporation raised $775 million, while Small Industries Development Bank of India, National Bank for Financing Infrastructure and Development, REC and Indian Oil Corp. raise $500 million each in August. According to RBI data, public sector companies raised $5.30 billion under the concessional forex swap scheme between June 8 and September 18.

India’s foreign exchange reserves continued to decline. The latest decline was driven by fall in international gold prices. Reserves fell by $1.27 billion to $719.75 billion in the week ended October 23, bringing the cumulative decline over seven weeks to $65.96 billion. Foreign currency assets rose by $1.36 billion to $593.21 billion, while gold reserves fell by $2.65 billion to $103.15 billion during the week.

Reservoir storage declined further, widening the shortfall relative to historical levels. As of October 29, live storage in the country’s 178 reservoirs stood at 122.00 billion cubic metres, or 66% of their total capacity. Storage was 27% lower than a year earlier and 19% below the 10-year average. Deficient southwest monsoon rainfall, the slow start to the northeast monsoon and low reservoir storage levels are likely to adversely affect rabi crops, which rely heavily on irrigation in many regions.

The northeast monsoon has made a slow start, although rainfall so far has been near normal in the core region, comprising Coastal Andhra Pradesh, Rayalaseema, Tamil Nadu and Puducherry, South Interior Karnataka and Kerala. Cumulative northeast monsoon rainfall stood at 51.7 millimetres as of October 31, equivalent to 69% of the long-period average. Rainfall in the core region, where the northeast monsoon is most active, was 166.3 millimetres, or 96% of the long-period average. 

Rabi sowing remained well behind last year’s pace amid deficient rainfall. The total area sown under rabi crops was 3.76 million hectares as of October 30, down 45.6% from a year ago. The area plated with wheat, the main rabi crop, was down 94.3% year-on-year at 0.02 million hectares, while rice acreage declined 4.0% to 0.32 million hectares. The area sown under pulses declined 51.7% to 0.95 million hectares, while oilseeds acreage fell 45.7% year-on-year to 2.10 million hectares. The area sown so far accounted for 5.8% of the normal rabi area of 64.52 million hectares.

 

Coming up

• November 2: HSBC India manufacturing PMI for October
  
• November 4: HSBC India services PMI for October
  
• November 12: CPI inflation for October

Tailpiece
The government has kept interest rates on small savings instruments unchanged for 11 consecutive quarters, despite the Reserve Bank of India cutting the policy repo rate by a cumulative 125 basis points between February and December 2025. As a result, rates on some small savings instruments are up to 128 basis points higher than their formula-based rat