India’s real gross domestic product (GDP) is expected to be 7.4 per cent in fiscal 2025-2026, as per the first advance estimates by the union government. For the same period, the World Bank has projected a growth of 7.2 per cent, while the International Monetary Fund (IMF) has forecast a growth of 7.3 per cent.
Even though the growth is expected to have moderated in the second half, after a buoyant 8 per cent growth in the first half, the projected growth numbers for the full year signifies the resilience of the Indian economy. This has been driven by a slew of domestic factors such as income tax rate reduction, the GST rate rationalisation, easing inflation and a 125 basis point policy rate cut to 5.25 per cent, so far by the Reserve Bank of India (RBI).
Core sectors show expansion
The headline inflation, though it increased to 1.33 per cent in December 2025, it remains below RBI tolerance level of 4 per cent within a band of 2 to 6 per cent. The core sectors grew 3.7 per cent in December 2025, with cement, steel, electricity, fertiliser and coal among the eight core sectors recording positive growth. The recent RBI monthly bulletin said there is continued buoyancy in growth impulses with demand conditions remaining upbeat.
The flow of financial resources to the commercial sector has increased over the past year, with both non-bank and bank sources contributing to the credit pick-up, it pointed out. Fast moving consumer companies (FMCG) have reported a revival in demand in the third quarter. The rural demand has been resilient and has outpaced urban demand. Capital goods companies have reported healthy order book positions.
The main levers of growth in recent years have been capex by union and state governments, amid a subdued private investment cycle. The union government capex has grown 28.2 per cent in the fiscal year so far, while the aggregate for states has increased 10 per cent so far. The capex by states generally accelerates towards the end of fiscal.
After a resilient fiscal 2026, India’s growth is expected to moderate to 6.5 – 6.9 per cent in FY27, as per forecast by different agencies. One of the positive aspects has been the government’s reform agenda. It has rolled out four labour codes, allowing 100 per cent foreign direct investment in insurance companies, opening doors to more foreign players to India among others. While the trade deal with the US is delayed, India has signed pacts with Oman, the UK, New Zealand and the EU one with the European Union is finalised. While green shoots are visible in the economy and some calling the present macro-economic situation presents a rare “goldilocks period” of high growth and low inflation, the challenges are far from over.
Private Investment turn silent
The centre’s tax collections have been weak, with 3.3 per cent growth in the first eight months of fiscal 2026, when compared to budgeted growth of 12.5 per cent. This may be partially offset by higher dividend transfer from RBI. States have also seen a moderate growth in their revenue receipts so far this fiscal. Given the fiscal constraints, the centre and states might find it difficult to sustain the capex momentum, thereby putting the onus on private players.
Experts say corporate balance sheets are healthier, but investments and credit offtake have been lower. The minutes of the RBI monetary policy meeting said investment activity remained healthy with a revival of private investments. It is said that the prospect may become visible after capacity utilisation ratio reaches back to a threshold of 75 per cent and above. As per reports, RBI data shows the capacity utilisation rate was 74.1 per cent during first quarter of fiscal 2026. This may be boosted through increase in domestic demand and export growth.
Despite a resilient domestic economy, the rupee has hit a new low against the dollar amid the selloff in the capital markets, due to the tariff related uncertainties. Experts say RBI will intervene to manage volatility, but the key is finalisation of trade deal with the US. As a first step it has been announced that the US would reduce its reciprocal tariffs on India to 18 per cent and there is a hint that the trade deal will be finalised soon.
Need for Structural Reforms
Meanwhile, the methodology for India’s GDP data is up for a revision which is likely to be released in February. Forecasts by various agencies will have to be revised to reflect the new series. Even though there is a lot of debate about the accuracy of the GDP numbers, there is consensus that India will achieve an average growth of 6.5 per cent in coming years. But the question is, will it be enough or far below potential which is 8 per cent according to some experts.
Whichever way one interprets the data, which can be at times misleading, the government still has its task cut out in terms of going ahead with the structural reforms process, as it moves towards its pursuit of making India a developed nation. Another big challenge is addressing the issue of unemployment and keeping pace as well as tackling the hurdles posed by technology advancements with the emergence of AI.
Bright spot amid the gloom
The Economic Survey 2025-2026 reiterates India’s economic resilience, amid the global geopolitical situation and tariff related turbulence. More importantly, it lifts the country’s medium-term growth potential to 7 per cent from 6.5 per cent three years back, banking on the cumulative impact of policy reforms over recent years.
Pegging the economic growth to be in the range of 6.8 to 7.2 per cent for fiscal 2027, the Survey also confirms India’s Goldilocks economy-which is an environment of high growth and low inflation. The survey acknowledges that the Indian rupee underperformed in 2025, despite strong economic fundamentals or in other words “rupee is punching below its weight”.
However, it suggests that in the long run, currency performance will be determined by the economy’s ability to generate domestic savings, sustain external balance, attract stable foreign direct investments and build export competitiveness rooted in innovation, productivity and quality. The Survey pitches for moving up the export value chain and building a strong and competitive domestic manufacturing ecosystem to realise the country’s global value chain potential, besides strengthening research and development and innovation.
It also calls for addressing a range of issues including dual taxation in trade, coordinated regulatory oversight of the financial sector and reducing stakes in government companies. The survey endorses swadeshi policy amid protectionism across the globe. “The policy question is no longer whether the state should encourage swadeshi, but how it should do so without undermining efficiency, innovation, or global integration,” it states.
The survey flags health hazards like rising ultra-processed food consumption, doubling obesity rates and digital addiction affecting academic performance and workplace productivity. It suggests setting up an AI Economic Council, which will ensure that AI advances productivity without eroding employment and the dignity of work and also calls addressing the skills gap.
Cautioning the unconditional cash transfer programmes by some states, the survey points to the altered expenditure composition and warned that any fiscal indiscipline at the state level casts a shadow on the sovereign borrowing costs. The Economic Survey has put froth some important suggestions, one has to wait and watch to see if the government takes them forward.
