Projecting 7.5% Growth in FY26 Amidst Global Headwinds
Despite global economic slowdown and uncertainties, India is projected to achieve robust growth, with CareEdge Ratings forecasting a 7.5% expansion in Gross Domestic Product (GDP) for Fiscal Year 2026 (FY26). This upward revision indicates strong domestic drivers, including thriving internal demand, a burgeoning manufacturing sector, and prudent monetary policy, positioning India as an outlier against global economic challenges.
Drivers of India’s FY26 Growth (7.5%)
The projected 7.5% growth is underpinned by several key strengths:
- Resilient Domestic Demand: Strong internal consumption, supported by reduced income tax burdens and rationalized Goods and Services Tax (GST) rates, along with robust festive demand in the first half of FY26, fuels economic activity. This domestic consumption acts as a buffer against external shocks.
- Revival in Private Capital Expenditure: The private capital expenditure cycle is showing an early revival, complemented by sustained foreign direct investment (FDI) in new-age sectors, indicating strong investor confidence. Robust order books for capital goods companies further support this optimistic investment outlook.
- Government Policy Support:
- Initiatives like “Make in India” and Production Linked Incentive (PLI) schemes are promoting domestic manufacturing and attracting foreign investment.
- Substantial investments in critical infrastructure development create an enabling business environment.
- Fiscal discipline is maintained, with a target fiscal deficit of 4.4% in FY26, supported by strong tax revenues and controlled spending.
RBI’s Proactive Role: Interest Rate Cuts and Benign Inflation
The Reserve Bank of India’s (RBI) strategic monetary policy is a key factor in India’s positive economic trajectory.
- Interest Rate Cuts: Throughout 2025, the RBI implemented a series of interest rate cuts, cumulatively reducing the benchmark repo rate by 125 basis points. The latest 25-basis-point reduction in December 2025 brought the rate to 5.25%, marking the most significant easing cycle since 2019 to stimulate demand.
- Benign Inflation Outlook: Consumer Price Index (CPI) inflation for FY26 is projected to average a low 2.1%, a significant downward revision attributed to broad-based easing, particularly in food prices, and improved supply conditions.
- “Goldilocks Phase”: RBI Governor Sanjay Malhotra described the current scenario as a “Goldilocks phase” with strong growth and low inflation, allowing for an accommodative monetary stance. Inflation is expected to normalize to around 4% in FY27.
Manufacturing and Exports: Powering India’s Ascent
The manufacturing sector is a crucial contributor to India’s growth, demonstrating robust expansion and transformation.
Manufacturing Sector’s Contribution to India’s FY26 Growth (7.5%)
- Robust Expansion: Indian manufacturing sales surged by 6% in FY25 due to domestic consumption, government initiatives, and exports. The HSBC India Manufacturing Purchasing Managers’ Index (PMI) reached a five-year high of 59.2 in October 2025, indicating accelerating output growth driven by strong demand, efficiency, and technology investments.
- Market Size and GDP Contribution: The sector is projected to reach a market size of US$1 trillion by FY26 and contribute 25% to GDP by the same year, aided by Industry 4.0 adoption.
- Production-Linked Incentive (PLI) Schemes:
- PLI schemes have spurred nearly ₹2 lakh crore (approx. US$23 billion) in actual investments across 14 key sectors as of September 2025.
- This has led to incremental production and sales exceeding ₹18.7 lakh crore and created over 12.6 lakh jobs.
- These schemes align with “Make in India” and “Aatmanirbhar Bharat” initiatives, aiming to establish India as a global manufacturing hub.
- Key performing sectors include electronics (smartphones), automotive, pharmaceuticals, and basic metals.
Exports
- Merchandise Exports: Expected to face challenges with a projected contraction of about 1% in FY26 due to a slowing global trade environment and rising protectionism.
- Services Exports: Demonstrating resilience, particularly in the IT and software sectors, with a projected growth of 8.5%.
- Electronics Exports: Surged by 38% year-on-year during April-November FY26, reaching US$31 billion, with annual projections of US$46-50 billion.
- Market Diversification: India is strategically diversifying export markets to mitigate the impact of trade restrictions.
Global Challenges and India’s Strategic Resilience
- Global Challenges: Ongoing global slowdown, trade uncertainties, and protectionist measures pose risks. The Global Trade Research Initiative (GTRI) suggests India might miss its US$1 trillion export target for FY26.
- External Position:
- Current Account Deficit (CAD): Projected to remain manageable at around 1% of GDP for FY26 and FY27, supported by strong services exports, remittances, and falling crude oil prices.
- Rupee Exchange Rate: Expected to trade around 89-90 per dollar in FY27, with the RBI focusing on smoothing volatility.
- Financial Outlook:
- Bloomberg Global Aggregate Index Inclusion: Anticipated to provide a significant structural boost to foreign portfolio flows.
- Fiscal Consolidation: Government’s commitment to reducing debt by FY31, assuming nominal GDP growth averaging around 10.7% over the next five years, instills confidence.
- Market Reforms: Progressive reforms, such as the new labor code, are expected to enhance investor sentiment and India’s attractiveness.
Conclusion: India’s projected 7.5% growth in FY26 highlights its fundamental economic strengths and strategic policy foresight. Despite global uncertainties, resilient domestic demand, a revitalized manufacturing sector, proactive monetary policy, and sustained government support position India as a significant global growth engine and a beacon of stability and opportunity.
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