India's favorable macroeconomic environment, characterized by strong growth and subdued inflation, is poised to continue into the next financial year, according to a recent assessment by India Ratings & Research. The ratings agency forecasts a Gross Domestic Product (GDP) expansion of 6.9 per cent for the fiscal year 2026-27, alongside a headline retail inflation rate of 3.8 per cent.
Navigating a Rare Economic Sweet Spot
This projection suggests India will remain in what Reserve Bank of India Governor Sanjay Malhotra termed "a rare goldilocks period." For the second consecutive year, the anticipated inflation rate is expected to fall below the RBI's medium-term target of 4 per cent. The current fiscal year, 2025-26, is set to close even stronger, with India Ratings expecting GDP growth of 7.4 per cent. This follows a surprisingly robust first half where real growth averaged 8 per cent, outperforming expectations from both economists and the central bank.
Concurrently, Consumer Price Index (CPI) inflation has been remarkably tame, prompting the RBI to revise its forecast downward six times in 2025 to just 2 per cent for the year ending March 2026. The confluence of high growth and benign price pressures creates an ideal scenario for sustainable economic momentum.
Imminent Data Revisions and Underlying Drivers
A significant factor that could reshape the economic narrative is the upcoming revision of key data series by the Ministry of Statistics and Programme Implementation (MoSPI). The agency noted that upcoming changes to the base year for GDP and CPI to 2022-23 and 2024, respectively, will prompt a revision of the current economic outlook once new data is available.
The first advance estimate of GDP for 2025-26, released on January 7, 2026, was the last under the old methodology. By the end of February 2026, MoSPI will release GDP data for the October-December 2025 quarter using the new base year and updated compilation methods. Similarly, CPI inflation data for January 2026, due on February 12, will reflect a new consumption basket based on the 2023-24 Household Consumption Expenditure Survey.
Driving the positive forecast are twin engines of consumption and investment. India Ratings economists, Devendra Kumar Pant and Paras Jasrai, project private consumption to grow by 7.6 per cent in 2026-27, bolstered by strong service sector performance, positive real wage growth from low inflation, personal income tax cuts from the 2025-26 Union Budget, and reductions in Goods and Services Tax (GST) rates. Investment, measured by gross fixed capital formation, is expected to rise by 7.8 per cent, led by sustained government capital expenditure.
Balancing Optimism with Notable Risks
Despite the optimistic outlook, India Ratings highlighted several challenges that could disrupt the goldilocks phase. Key risks include a weak currency, with the rupee expected to average 92.3 against the US dollar in 2026-27, a high base effect, slower growth in indirect tax collections following GST rate cuts, a potential El Nino weather phenomenon in mid-2026, and a weaker-than-expected revival in demand.
"Emerging tech like AI (artificial intelligence) also presents new hurdles," cautioned Devendra Kumar Pant, Chief Economist at India Ratings. On the positive side, growth could exceed projections if India successfully finalizes a trade deal with the United States. The agency also expects the central government to meet its fiscal deficit target of 4.4 per cent of GDP for 2025-26 and set a goal of 4.1 per cent for 2026-27.
While low interest rates—the RBI cut the repo rate by 125 basis points in 2025—provide a necessary condition for private investment, the agency notes it is not sufficient on its own. However, with industrial loan growth accelerating in the latter half of 2025, there is growing optimism for a private capital expenditure revival, complementing the government's infrastructure push.
