India’s industrial growth accelerated to 8.0% in August from an upwardly revised 7.4% in July. The growth was led by robust growth in manufacturing and electricity and gas supply, which together account for nearly 87% of the Index of Industrial Production’s total weight. Manufacturing output rose 9.0%, while electricity and gas supply increased 12.3% in August. The growth was partly aided by a favourable base, as companies had lowered production in anticipation of the cut in goods and services tax rates in September last year.

Mining and quarrying output declined 5.6% in August, marking its seventh contraction in eight months. The weakness in the mining sector reflected contractions in the output of crude oil, natural gas, and coal in August.

Within the use-based sectors, capital goods, intermediate goods, infrastructure and construction goods, and consumer durables grew at double-digit rates in August. Capital goods grew by a double-digit rate for the fifth consecutive month, while consumer durables did so for the third straight month.

The buoyant factory output growth in June to August contrasts with the weakness reflected in the manufacturing purchasing managers’ index during the period. Industrial growth averaged 8.0% over the three months to August, while the manufacturing PMI fell to its lowest level in five years during the period.

 

India’s manufacturing activity recovered in September, with new orders and output growing at a faster pace. The seasonally adjusted HSBC India Manufacturing PMI rose to a seven-month high of 55.1 in September from a five-year low of 52.8 in August.

The Manufacturing PMI in September was lower than the flash estimate of 55.7. The average PMI for July-September was 53.8, the lowest for the period since 2021. Interestingly, the manufacturing component of the Index for Industrial Production grew at 8.6% so far in July-September quarter, the highest for any quarter since the start of the new IIP series.

 

The Indian government’s fiscal deficit rose 18.7% year-on-year to ₹7.10 trillion in April-August, primarily because of a sharp decline in net tax collections in August. The fiscal deficit accounted for 41.9% of the budget target of ₹16.96 trillion for the full year, compared with 38.1% in the same period of last year.

The government’s total receipts grew 6.6% year-on-year to ₹13.68 trillion in April-August, while total expenditure rose 10.5% to ₹20.78 trillion.

The growth in total receipts moderated, primarily on account of a decline in gross tax collections and front-loading of tax devolution to states. Consequently, net tax collections were negative at ₹66 billion. Gross tax collections declined 14.8% to ₹2.14 trillion in August, while tax devolution during the month more than doubled year-on-year to ₹2.18 trillion. As a result, the government’s fiscal deficit in August nearly doubled year-on-year to ₹2.55 trillion.

Meanwhile, within total expenditure, revenue expenditure increased 8.2% to ₹15.68 trillion in April-August, while capital expenditure rose 18.2% to ₹5.10 trillion.

The government’s gross tax collections declined 14.8% year-on-year to ₹2.14 trillion in August, primarily on account of a 29.1% fall in direct tax collections to ₹858 billion. Within direct taxes, income tax collections declined 37.2% to ₹538 billion, while corporate tax collections fell 20.0% to ₹246 billion.

Indirect tax collections fell 1.6% to ₹1.28 trillion, led by a 20.8% decline in excise duty collections to ₹222 billion. Goods and services tax collections rose 3.2% to ₹819 billion, while customs duty collections increased 1.5% to ₹222 billion.

Gross tax collections in April-August rose 6.5% to ₹14.32 trillion, led by a 14.6% increase in direct tax collections to ₹7.94 trillion. Within direct taxes, income tax collections rose 12.3% to ₹4.95 trillion, while corporate tax collections increased 15.4% to ₹2.65 trillion. Indirect tax collections in April-August contracted 2.0% to ₹6.38 trillion. Within indirect taxes, GST collections declined 3.4% to ₹4.39 trillion, while excise duty collections contracted 22.6% to ₹867 billion. The government overhauled the GST structure, reducing the number of tax slabs in September last year, while the government cut excise duty on petrol and diesel in March to protect consumers from a sharp rise in crude oil prices. Customs duty collections rose 28.2% to ₹1.07 trillion in April-August.

 

Goods and services tax collections rose 14.7% year-on-year to ₹2.04 trillion in September. The year-on-year comparison is not strictly comparable because this year’s collections include a portion of the erstwhile GST compensation cess that has been subsumed into GST rates following the government’s restructuring of the indirect tax regime, while last year’s collections excluded cess collections. Net GST collections, after refunds, rose 10.1% to ₹1.77 trillion.

 

 

India’s services trade surplus narrowed to a three-month low of $16.64 billion in August from $17.65 billion a month earlier, primarily because imports grew faster than exports during the month. Services imports rose 21.4% year-on-year to $18.83 billion, while services exports increased 13.7% year-on-year to $35.47 billion. Including merchandise trade, the overall trade deficit in August narrowed to $8.03 billion from $11.25 billion a month earlier.

 

 

Growth in non-food bank credit slowed as of August 31 from a month earlier, primarily on account of moderation in credit to industry. Growth in non-food bank credit eased to 18.8% year-on-year as of August 31, down from 19.1% a month earlier but sharply higher than 7.6% a year earlier. Growth in credit to industry decelerated to 18.2% from 20.0% a month earlier, while growth in credit to services increased to 24.3% from 22.9% a month earlier.

Personal loans, which account for roughly one-third of total non-food credit, increased by 16.9%, up from 16.2% a month earlier, while agricultural credit accelerated to 17.2% from 17.0% a month earlier.

Lending rates on fresh loans rose in August as market rates continued to firm up on expectations of an imminent rate hike by the Reserve Bank of India’s Monetary Policy Committee. The weighted average lending rate on fresh rupee loans of scheduled commercial banks rose by 9 basis points month-on-month to 8.61% in August. Barring July, when it fell by one basis point, the weighted average lending rate on fresh loans has been rising since April. However, the weighted average lending rate on outstanding rupee loans of banks declined marginally to 8.96% in August from 8.97% a month earlier. The weighted average rate on fresh term deposits fell by 18 basis points to 5.67% in August.

Since the start of the monetary easing cycle in February 2025, the weighted average lending rate on fresh rupee loans has declined by 72 basis points, compared with a cumulative reduction of 125 basis points in the policy repo rate. Over the same period, the weighted average rate on fresh term deposits fell by 95 basis points.

 

 

Gross value added in the registered manufacturing sector at current prices grew 9.6% in 2024-25, down from 11.9% a year earlier, according to the Annual Survey of Industries. Employment in the registered manufacturing sector rose 7.2% to 21.0 million from 19.6 million in 2023-24. India’s five most industrialised states - Tamil Nadu, Maharashtra, Gujarat, Uttar Pradesh and Haryana - accounted for 56% of total manufacturing employment during the year.

India’s annual inflation rate, based on the CPI for Industrial Workers, rose to a 33-month high of 4.96% in August from 4.57% a month earlier, largely due to higher food and beverage prices. The increase was in line with the rise in inflation based on the more closely watched CPI Combined, which rose to a 20-month high of 4.82% in August.

 

India’s external debt rose to $778.2 billion at the end of June, up $31.4 billion from a year earlier. Short-term debt, or debt with a residual maturity of 12 months or less, accounted for 43.4% of total external debt and 50.5% of foreign exchange reserves.  As a percentage of GDP, external debt at the end of June was 20.8%.

India’s foreign exchange reserves fell $18.3 billion to $747.6 billion in the week ended September 25, the sharpest weekly decline on record, RBI data showed. Reserves have now fallen for a third consecutive week, dropping about $38.2 billion from their record $785.7 billion reached in the week ended September 4.

The decline comes as the RBI stepped up intervention in the foreign exchange market to contain rupee volatility amid higher crude oil prices. The central bank has used both spot and forward transactions, alongside dollar-rupee sell/buy swaps. While the swaps helped replenish reserves and absorb excess rupee liquidity earlier, recent intervention has contributed to the drawdown.

As the southwest monsoon came to an end, water storage levels in key reservoirs were sharply lower than last year’s levels and normal levels. As of October 1, live storage in 178 reservoirs in the country was 132.73 billion cubic metres, accounting for 72% of live storage capacity. Live storage was 90.3% at this time last year, compared with 81.8% of capacity for the 10-year average. Current live storage was 20% below last year’s level and 12% below the 10-year average.

Reservoir storage is typically replenished during the southwest monsoon. This year, water storage increased by roughly 76.4 billion cubic metres during the southwest monsoon season, compared with a normal increase of 103.8 billion cubic metres during the season.

 

India recorded its lowest southwest monsoon rainfall in 11 years in 2026. Cumulative southwest monsoon rainfall across the country was 759.4 millimetres, or 87% of the long-period average. This was the lowest cumulative rainfall since 758.2 millimetres in 2015. Among the four regions, rainfall was 74% of the long-period average in East and Northeast India, 76% over the South Peninsula, 94% over Northwest India, and 97% over Central India. Rainfall was 65% of the long-period average in June, 101% in July, 84% in August, and 92% in September.

 

Coming up

• October 6: HSBC India Services PMI for September
• October 12: Consumer Price Index for September
• October 14: Trade data for September
• October 14: Output Producer Price Index for September

Tailpiece
US dollar-denominated debt continued to dominate India’s external debt, accounting for 54.8% at the end of June. Rupee-denominated debt accounted for 29.8%, yen-denominated debt for 6.9%, the International Monetary Fund’s Special Drawing Rights for 4.1%, and euro-denominated debt for 3.5%.