India’s economy is forecast to grow 6.5% in FY26, driven by resilient domestic demand and strong first-quarter momentum, despite escalating trade tensions with the United States clouding the outlook.
Strong Start to FY26
India’s GDP expanded 7.8% year-on-year in the April–June quarter, its fastest pace in five quarters, supported by manufacturing, services, and government-led investment. Private consumption and fixed capital formation grew by around 7%, underscoring the economy’s broad-based strength.
Both the Reserve Bank of India (RBI) and leading domestic banks have maintained their full-year growth projection of 6.5%, indicating robust fundamentals despite external shocks.
Tariffs and External Risks
The biggest risk stems from U.S. tariff hikes under President Trump’s administration, with duties of up to 50% on key Indian exports, including textiles, chemicals, and gems. Economists estimate the measures could shave 0.4–0.8 percentage points off India’s growth in FY26.
The Indian rupee has already hit record lows, reflecting investor concerns over widening trade imbalances. Fitch Ratings projects a more cautious 6.3% growth, citing tariff risks but maintaining India’s long-term investment-grade rating.
Policy Cushion
To counter external headwinds, India is advancing GST rationalization, tax incentives, and pro-consumption fiscal measures that could add 1–1.6% of GDP through stronger domestic spending.
Chief Economic Adviser V. Anantha Nageswaran emphasized that rural demand, infrastructure spending, and targeted support programs will serve as buffers, while analysts view India’s policy agility as crucial in navigating volatility.
