Continuing our monthly series on the Indian economy, here is how the key metrics moved through September 2026. As usual, a few indicators are reported with a lag, so retail inflation (CPI), wholesale inflation (WPI), mutual fund flows and labour force data below refer to August, the latest month released. September CPI is due on 12 October and September WPI on 14 October, so we will pick those up next month.
The headline story: the RBI raises rates. The single biggest development came just after the month ended. On 7 October 2026, the Reserve Bank of India’s Monetary Policy Committee voted unanimously to raise the repo rate by 25 basis points, from 5.25% to 5.50%. This is the RBI’s first rate hike since February 2023, after a series of cuts in 2025 and five consecutive meetings on hold. The committee also changed its stance from neutral to “calibrated tightening” by a 4-2 vote, which signals that rate cuts are off the table for now. The Standing Deposit Facility rate moved to 5.25% and the Marginal Standing Facility rate and Bank Rate to 5.75%. The RBI raised its inflation projection for FY 2026-27 to 5.2% while also raising its GDP growth forecast to 7.1%. Elevated crude oil, the West Asia conflict and a weaker rupee were the main reasons cited. The minutes of the meeting will be published on 21 October.
Crude oil was the backdrop to almost everything else this month. Brent crude crossed 100 US Dollars a barrel on 9 September, settled around 104.6 Dollars on 12 September after touching higher levels earlier that week, and was still hovering around 107 Dollars late in the month as US-Iran talks stalled. Globally, the US Federal Reserve raised its target range by 25 basis points to 3.75%-4.00% on 16 September, and US 10-year Treasury yields climbed to around 5%, their highest in nearly two decades. Higher US yields pull foreign money away from emerging markets like India, and this showed up clearly in the rupee, bonds and equities below.
India’s gross Goods and Services Tax (GST) collection for September 2026 stood at 2,03,521 crore Rupees, up 14.7% year-on-year, keeping monthly collections above 2 lakh crore Rupees for the third month in a row. Domestic transactions grew 10.1% to 1,37,996 crore Rupees, while GST on imports rose 25.9% to 65,525 crore Rupees, once again reflecting the costlier import bill. Unlike August, refunds actually fell 3% to 27,001 crore Rupees, so net GST revenue rose a strong 18.1% to 1,76,520 crore Rupees. Maharashtra remained the largest contributor at 29,986 crore Rupees, up 15%. Cumulative gross GST collections for April-September 2026 reached 12.46 lakh crore Rupees, 11.6% higher than a year ago.
The Purchasing Managers’ Index (PMI) data was the good news of the month. Manufacturing PMI rebounded to 55.1 from August’s five-year low of 52.8, its strongest reading in seven months, with new orders, output and exports all picking up and factory hiring returning to growth after August’s decline. Services PMI rose to 55.2 from 54.1, a three-month high, driven by domestic demand for financial, consumer and digital services, although services export orders grew at their slowest pace in nearly three years. The Composite PMI climbed to 55.9 from 54.3. One note of caution: all three final readings came in below the earlier flash estimates, and the July-September quarter as a whole was the weakest for private sector activity since early 2022.
On inflation, retail CPI for August came in at 4.82%, up from 4.45% in July and the fourth consecutive monthly rise since May’s 3.93%. Food inflation climbed to 5.95%, with sharp jumps in kitchen staples: onion prices were up about 48% year-on-year and ginger about 74%. Rural inflation (5.23%) was noticeably higher than urban inflation (4.31%). Wholesale inflation (WPI) for August edged up to 9.92% from 9.78%, staying close to double digits. Fuel and power inflation rose to 22.93%, with mineral oils (petroleum products) up a steep 38.48%, while manufactured products inflation firmed slightly to 8.37%. June’s WPI was also revised up to 9.97%. With the gap between wholesale and retail inflation this wide, the risk is that more of these higher input costs gradually reach consumers, which is exactly the concern behind the RBI’s rate hike.
The Indian Rupee had a difficult month. It closed at 94.43 to the US Dollar on 4 September and then slid steadily, touching about 96.20 in the second half of the month, its weakest level since July, before ending September around 95.8. The RBI was active in the market to slow the fall, and this is visible in the reserves. India’s Foreign Exchange Reserves hit a fresh record of 785.71 Billion US Dollars for the week ended 4th September, then declined for three straight weeks to 747.6 Billion Dollars for the week ended 25th September. The 18.3 Billion Dollar drop in that final week was reportedly the biggest weekly fall on record. Even so, reserves remain well above where they were at the end of March 2026.
24K Gold prices in India eased from August’s peak. On the days we checked through September, 24K gold traded at roughly 1,52,700 to 1,55,400 Rupees per 10 grams, below the August high of about 1,64,000 Rupees recorded on 24th August. Gold remains well above its levels from earlier in the year, and with Dhanteras and Diwali approaching, readers may find our earlier piece on gold ETFs vs digital gold vs physical gold useful.
On mutual funds, the latest Association of Mutual Funds in India (AMFI) data (for August) showed total net inflows falling to 41,354 crore Rupees from July’s unusually large 2.36 lakh crore Rupees, as debt funds swung to a net outflow of 8,127 crore Rupees. Equity, however, held up well: equity schemes drew 29,329 crore Rupees, up about 19% from July, their 66th consecutive month of inflows, with small-cap funds again leading at 7,973 crore Rupees. Monthly SIP contributions hit a record 32,297 crore Rupees, gold ETFs attracted 2,597 crore Rupees, and total industry AUM rose 1.5% to a record 87.08 lakh crore Rupees. Folios climbed to 28.35 crore.
Bond markets came under pressure. India’s benchmark 10-year government bond yield crossed 7% on 11 September for the first time in over three months, and the benchmark 6.94% 2036 bond closed September at 7.19%, a two-and-a-half-year high, after rising 24 basis points during the month. After the RBI’s hike, the 10-year yield moved up further to around 7.23%. For investors, rising yields mean falling prices for existing long-duration bonds and gilt funds, but also better rates on new fixed-income investments.
Equities had their toughest month of the year. The NIFTY 50 fell 6.03% in September to close at 22,620.45, and the BSE Sensex fell 5.82% to 72,480.29, a second straight monthly decline and the worst month since March. Nifty IT was the weakest sector, down over 11%, while Nifty Auto fell almost 9%. Media was the only sectoral index to end the month higher. For the first nine months of 2026, the Sensex is down about 15% and the Nifty about 13%, their weakest January-September performance since 2011, with foreign portfolio investors having pulled roughly 2.5 lakh crore Rupees out of Indian equities this year. The primary market, in contrast, stayed busy, with close to 30 mainboard listings during the month.
On the labour market, the latest Periodic Labour Force Survey (PLFS) bulletin (for August, on a Current Weekly Status basis) showed India’s unemployment rate easing slightly to 5.0% from 5.1% in July. Rural unemployment fell to 4.1%, its lowest level since January 2026, while urban unemployment remained high at 6.8%. Labour force participation improved to 55.6%, and female participation rose to 34.8% from 33.7% a year earlier.
India’s GDP growth for April-June 2026 (Q1 FY27) remains at the 7.8% reported last month, and the RBI’s upgraded full-year forecast of 7.1% suggests the central bank still sees the economy as fundamentally strong. India continues to grow faster than the US, China, the European Union, Japan and the UK.
Taken together, September 2026 was a month of two halves. The domestic economy looked healthy on paper, with a strong PMI rebound, record GST collections and improving employment. But the external environment turned hostile: oil above 100 Dollars, a Fed rate hike, US yields near 5%, heavy foreign selling, a weaker rupee and the sharpest fall in reserves on record. The RBI has now made its choice clear by prioritising inflation control. For households, that means floating-rate loan EMIs are likely to start edging up and fixed deposit rates may improve. For investors, it is a reminder of why asset allocation and an adequate emergency fund matter more than predicting the next market move. September CPI on 12 October will tell us whether the RBI acted early enough.
Related reading: Indian economic data for August 2026, Indian economic data for July 2026, and RBI, SEBI and government regulatory roundup.
