India's FY26 growth upgraded to 7% as inflation eases: Ind-Ra

Dr Devendra Kumar Pant, chief economist and head of public finance at Ind-Ra, said that since July, major headwinds have emerged from the uncertain global environment created by the US’ unilateral tariff hikes on all countries, with India facing some of the steepest increases since late August 2025. Domestically, urban demand remains weak, with the urban consumer confidence index falling below 100 to 96.9 in September 2025, while rural sentiment has stayed comparatively stronger at 100.9. On the positive side, faster-than-expected disinflation is supporting growth by boosting real wages, particularly in rural areas, and by enhancing the gains from GST rationalisation.

For India, the steep tariffs imposed by the US have weighed on outbound shipments. Indian exports to the US fell 8.9 per cent year-on-year in October 2025, bringing average monthly exports down to $5.9 billion during September–October from $7.4 billion between April and October. Securing a bilateral trade pact with the US and tapping alternative markets will be essential to revive export growth, Ind-Ra noted.

Building on these trends, private final consumption expenditure is projected to grow 7.4 per cent in FY26, supported by lower inflation, rising real wages and GST rationalisation, while investment activity is expected to remain resilient, with gross fixed capital formation forecast to increase 7 per cent.

However, telecom, chemicals and garment-exporting sectors may see weaker capex, while oil and gas and metro real estate are likely to remain flat. In contrast, power, renewables, logistics, warehousing and commercial real estate are set to sustain their momentum.

Retail inflation is expected to average 2.1 per cent in FY26, supported by subdued wholesale prices and GST rationalisation. With nominal GDP likely to grow just 8.9 per cent, the RBI may consider cutting rates by as much as 50 basis points, noted Ind-Ra.

In the external sector, goods exports and imports are expected to moderate, widening the trade deficit to $345.4 billion.

The basic external balance is projected at –0.7 per cent, and the rupee could depreciate about 4.3 per cent against the US dollar in FY26.

The US’ unilateral tariff hikes have also heightened global economic uncertainty, initially fuelling expectations of weaker global growth in 2025. However, the International Monetary Fund’s October 2025 update now forecasts global GDP growth at 3.2 per cent year-on-year, with global trade in goods and services expected to expand 3.6 per cent, significantly higher than earlier projections of 1.7 per cent and 2.6 per cent. 

ALCHEMPro News Desk (CG)