India's GDP growth projected at 7.4% in FY26, 7% in FY27: Care Ratings

FY26 growth momentum has been supported by income tax cuts, goods and services tax rationalisation, encouraging services exports, easing inflationary pressures and central bank rate cuts, the rating agency noted in an ‘Economy Update’ report.

GDP growth is estimated to moderate to 6.9 per cent in the second half (H2) of FY26 from 8 per cent in H1.

It projects India’s goods exports to contract by around 1 per cent in FY26 as against a growth of 0.1 per cent in FY25. Furthermore, ongoing global uncertainties and delays in trade deals with the United States are expected to pose challenges for the country’s goods exports, the report noted.

While India’s exports to the United States have exhibited weakness in the last three months, exports to the world continue to hold up relatively well. There are also early indications of rising market share of exports to other destinations like the United Arab Emirates, Hong Kong and China.

Average consumer price index (CPI)-based inflation is projected at 2.1 per cent in FY26 and 4 per cent in FY27. The rollout of the new CPI series (2024 base year) is an important factor to monitor.

Recent rise in inflation is unlikely to bother the central bank. While there is room for a 25-basis point rate cut, Care Ratings expects the bank’s monetary policy committee to pause and preserve policy space unless growth weakens.

Current account deficit (CAD) (as per cent of GDP) is projected at close to 1 per cent in both FY26 and FY27.

Fiscal deficit (as per cent of GDP) is projected to be at 4.4 per cent in FY26 and between 4.2 per cent and 4.3 per cent in FY27.

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