The Indian government has projected a powerful economic entry into 2026, underpinned by strong domestic fundamentals that are expected to counterbalance a difficult global trade landscape. In its year-end economic review, the administration highlighted a "Goldilocks period" of high growth coupled with low inflation, setting a positive tone for the coming year.
Strong Growth Drivers and Upward Revisions
The report pointed to resilient domestic demand as a key pillar, evidenced by a six-quarter high real GDP growth of 8.2% for the second quarter of the fiscal year. This was complemented by an 8.1% expansion in real Gross Value Added (GVA), driven primarily by the industrial and services sectors.
In light of this broad-based momentum, the Reserve Bank of India (RBI) has revised its GDP growth forecast for FY26 upwards to 7.3% from an earlier estimate of 6.8%. This optimism is echoed by major global institutions, which have also upgraded their projections.
- The World Bank projects 6.5% growth for India in FY26.
- The International Monetary Fund (IMF) raised its forecast to 6.6%.
- The Asian Development Bank (ADB) hiked its 2025 forecast to 7.2%.
Inflation, Jobs, and External Sector Resilience
A major factor contributing to the optimistic outlook is the benign inflation environment. Retail inflation, based on the Consumer Price Index, softened significantly from 4.26% in January 2025 to just 0.71% in November 2025. This has provided the RBI with the policy space to maintain supportive monetary and financial conditions.
The labour market has shown notable improvement, with the unemployment rate dropping to 4.7% in November 2025 from 5.2% in October, marking the lowest level since April 2025.
On the external front, resilience is evident through robust foreign exchange reserves and improved current account dynamics. Services exports have recorded solid growth, reflecting India's expanding role in global value chains, while strong remittances have helped moderate the current account deficit.
Analyst Views and Near-Term Cautions
Economists acknowledge that growth outcomes have surpassed expectations, benefiting from significant policy measures. Aditi Nayar, Chief Economist at ICRA Ltd., noted the impact of income tax relief, GST reform, 125-basis-point policy rate cuts, and liquidity support. A sharp dip in inflation eased household budget pressures, and an above-normal monsoon boosted agricultural output.
However, Nayar cautioned that entrenched concerns on the external front could impact near-term growth unless a trade deal with the United States materializes soon. ICRA expects India's GDP growth to rise to 7.4% in FY26 from 6.5% in FY25. Growth for FY27 is projected in the 6-7% range, with the upper end contingent on a US trade deal before the next fiscal year begins and no new constraints on services trade.
The government's report concludes that a combination of favourable agricultural prospects, sustained GST rationalization benefits, robust corporate and financial sector balance sheets, and ongoing reforms are poised to keep the Indian economy on a strong upward trajectory as it steps into 2026.
