The ministry said the Q1 of FY26 presents a picture of resilient domestic supply and demand fundamentals

Indian economy has the look and feel of "steady as she goes" for the current fiscal, the finance ministry said on Monday even as it flagged slowing credit growth.

In its monthly economic review, the ministry said the first quarter of fiscal 2025-26 (FY26) presents a picture of resilient domestic supply and demand fundamentals.

With inflation remaining within the target range and monsoon progress on track, the domestic economy enters the second quarter of FY26 on a relatively firm footing.

While geopolitical tensions have not elevated further, the global slowdown, particularly in the US (which shrank by 0.5 per cent in Q1 2025), could dampen further demand for Indian exports.

"Continued uncertainty on the US tariff front may weigh on India's trade performance in the coming quarters. Slow credit growth and private investment appetite may restrict acceleration in economic momentum," it said.

Further, given the deflationary trend in the wholesale price index, one has to observe economic momentum in nominal quantities. Measured in constant prices, economic activity may appear healthier than it is, the review report said. "All that said, the economy has the look and feel of 'steady as she goes' as far as FY26 is concerned," it said.

The report noted despite monetary easing and a strong bank balance sheet, credit growth has slowed, reflecting cautious borrower sentiment and possibly risk-averse lender behaviour. "A growing preference for bond markets, particularly commercial papers among corporates due to lower borrowing costs, may also explain the shift," it said. 

Piggybacking on initiatives like the Employment Linked Incentive (ELI) scheme, the ministry said it is time for corporates to set the ball in motion.