Despite a slowing global economy and rising trade uncertainties, India enters 2026 with resilient demand, policy support and structural momentum that point to a positive growth outlook.
Our Bureau
New Delhi
As the global economy grapples with slower growth, geopolitical tensions and shifting trade patterns, India stands out as a rare bright spot heading into 2026. Multiple assessments—from the United Nations to leading domestic financial institutions—suggest that while challenges remain, the underlying strength of the Indian economy, driven by domestic demand, public investment and supportive monetary policy, positions it well for another year of solid growth.
According to the United Nations’ World Economic Situation and Prospects (WESP) 2026, global output is expected to grow by 2.7 per cent in 2026, below the pre-pandemic average of 3.2 per cent. Trade barriers, policy uncertainty and constrained fiscal space are weighing on many economies, raising fears of a prolonged period of slower global expansion. Yet, even in this difficult environment, South Asia is projected to outperform most regions, with GDP growth expected at 5.6 per cent in 2026 and accelerating further to 5.9 per cent in 2027.
India remains the anchor of this regional resilience. While the UN projects India’s growth to moderate from an estimated 7.4 per cent in 2025 to 6.6 per cent in 2026, this still places the country among the fastest-growing major economies in the world. More importantly, the drivers of this growth—resilient household consumption, strong public capital expenditure and easing financial conditions—suggest durability rather than a fleeting rebound.
Domestic demand continues to be India’s biggest strength. Private consumption has held up well, supported by steady labour markets, easing inflation and direct benefit transfers that disproportionately benefit lower-income households with a higher propensity to spend. Public investment, particularly in infrastructure, has remained robust, crowding in private investment and improving long-term productive capacity. Lower interest rates, following a cumulative 125-basis-point policy rate cut in 2025, are expected to transmit more fully in 2026, reducing borrowing costs for businesses and households alike.
India’s inflation trajectory has also turned favourable. After a marked decline in 2025, inflation is largely within comfort zones, creating room for continued monetary easing. This benign inflation environment contrasts with many advanced and emerging economies still grappling with price pressures, giving India greater policy flexibility to support growth.
There is also growing optimism that official growth numbers may eventually be revised upward. A report by the State Bank of India (SBI) notes that GDP growth for FY26, currently pegged at 7.4 per cent by the National Statistical Office’s first advance estimates, could rise to around 7.5 per cent once the base year is revised to 2022–23. Historically, such revisions have often lifted growth estimates, reflecting better data coverage and structural changes in the economy. The SBI report also highlights that per capita national income is expected to rise by over Rs 16,000 annually to nearly Rs 2.5 lakh in FY26, reinforcing the narrative of improving living standards.
Sectorally, services remain the key engine of growth. Services output is projected to grow by over 9 per cent in FY26, with broad-based momentum across trade, transport, finance and public services. Manufacturing is also expected to post healthy growth of around 7 per cent, aided by government incentives, infrastructure spending and improving capacity utilisation. While agriculture growth may moderate after a strong previous year, above-normal monsoons provide a cushion to rural incomes and consumption.
External conditions, though challenging, are not entirely unfavourable. Higher US tariffs may affect select product categories, but India’s diversified export basket and strong demand from non-US markets are expected to partially offset these pressures. In fact, early signs of export resilience are already visible. Merchandise exports to the US rose sharply in the first months of FY26 as exporters front-loaded shipments ahead of tariff hikes. Ongoing negotiations for a potential India–US trade deal could further improve market access and reduce tariff burdens, offering an upside to exports in 2026 and beyond.
That said, risks remain clearly tilted to the downside. A sharper-than-expected slowdown in major economies such as the US, China or the European Union could dampen trade, investment flows and tourism. Fragile fiscal positions and high public debt in parts of South Asia limit the scope for countercyclical support in the event of external shocks. The UN has also cautioned that rising geopolitical tensions, inward-looking policies and weakening multilateralism add to global uncertainty.
In a world settling into slower growth, India’s relative strength is its scale, its domestic market and its policy capacity. While 2026 may not be without headwinds, the balance of evidence suggests it could still be a good year for the Indian economy—one defined less by exuberance and more by steady, confidence-building progress.
