India's GDP to Grow Around 6.5% in FY26: Domestic Demand to Keep Economy Afloat According to the Reserve Bank of India, real GDP growth is projected at 6.5% in FY26, with risks "evenly balanced."
By Rajat Mishra
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Despite global economic uncertainties, India's growth engine is expected to maintain its momentum through FY26, with most forecasts converging around 6.4%–6.7% GDP expansion. Economists say strong domestic consumption, public capex, and moderating inflation will cushion the economy even as exports and private investment face pressure.
According to the Reserve Bank of India, real GDP growth is projected at 6.5% in FY26, with risks "evenly balanced." The central bank attributes the resilience to steady investment activity, rural recovery, and strong services output. Other agencies, including S&P Global Ratings, Fitch, and Deloitte India, have issued similar projections, underlining India's position as the fastest-growing major economy for another year.
"India's economy grew 7.8 percent YoY in the April-June quarter of FY2025–26, surpassing expectations. Deloitte projects a baseline GDP of 6.7–6.9 percent for FY2025–26 and 6.5–6.9 percent for FY2026–27. Domestic demand resilience will be driven by tax exemptions, GST reforms, monetary policy and a US trade deal," Rumki Mazumdar, Director and Economist at Deloitte India said.
Global Headwinds, Local Strengths
The world economy continues to grapple with weak trade flows, slowing manufacturing, and policy uncertainty driven by geopolitical tensions and trade disputes. Yet, India remains relatively insulated thanks to its large domestic market.
"Sustained consumption and robust public investment are expected to keep growth above 6.5%," said S&P in its latest outlook. The agency added that a normal monsoon and easing commodity prices would further support purchasing power and rural demand.
However, economists caution that growth will likely moderate compared to the post-pandemic rebound years. The sharp recovery from pent-up demand has faded, and the next leg of growth will depend on productivity gains and private investment rather than fiscal stimulus alone.
Public Capex Remains the Backbone
A major growth driver remains government-led infrastructure spending. The Union Budget 2025-26 maintained its focus on capital expenditure, allocating over ₹11 lakh crore for roads, railways, and urban projects. States like Uttar Pradesh, Maharashtra, and Gujarat have also raised their infrastructure outlays.
"Public investment continues to crowd-in private spending, but we need to see stronger participation from corporates," said an RBI official in the latest Monetary Policy Report.
Economists note that while private capex is improving in sectors such as renewable energy, electronics, and data centers, the overall investment cycle remains uneven due to global demand uncertainties and high borrowing costs.
Consumption and Services Continue to Power Growth
Domestic consumption — the mainstay of India's economy — remains buoyant. Rising incomes, government welfare transfers, and urban job recovery have supported household spending.
The services sector, particularly financial services, IT, tourism, and transport, continues to be a major growth anchor, contributing over 50% to GDP.
Exports and Manufacturing Still Under Stress
External demand remains a weak spot. Merchandise exports have slowed amid global trade frictions, tariff measures by major economies, and lower demand from Europe and the US. Sectors such as textiles, engineering goods, and chemicals are feeling the pinch.
Meanwhile, manufacturing growth is expected to stay modest at around 5% in FY26, constrained by soft global orders and subdued corporate capital spending. Economists expect production-linked incentive (PLI) schemes in electronics, EVs, and pharmaceuticals to show stronger results only over the medium term.
India Remains the Bright Spot
Even with these headwinds, India stands out as a rare bright spot in the global economy. For FY26, growth near 6.5% means India will outpace every other major economy — from the US to China — underscoring its resilience amid global slowdown.
"Looking ahead, this is likely to be one of the strongest quarters of the year. While higher US tariffs could weigh on exports and manufacturing in subsequent quarters, domestic demand should continue to drive growth, supported by easing inflation, GST rationalization, and continued policy support," Mazumdar of Deloitte said.
