Economy may grow at 7% in FY27 despite trade tensions: CareEdge Ratings

CareEdge Ratings expects 7% growth in FY27, citing a possible US-India trade deal, low inflation and strong capex, while warning US tariffs could weigh on goods exports

The Indian economy is expected to grow at 7 per cent in the next financial year 2026-27 (FY27), despite the lingering trade-related uncertainties, according to CareEdge Ratings’ latest outlook for the Indian economy. 

“The possibility of the US-India trade deal, low inflation being supportive of consumption, low interest rates and the lower tax burden are positives for the FY27 growth outlook. Furthermore, the optimistic capex outlook, as evidenced by the strong order books of the capital goods companies, also bodes well for the investment scenario in the economy,” the agency said. 

CareEdge has projected the economy to grow at 7.5 per cent in FY26 despite US tariffs denting exports. It projects the gross domestic product (GDP) growth to moderate from the 8 per cent high recorded in the first-half of FY26 to around 7 per cent in the second half as export front-loading fades and consumption-led demand moderates after festival season. 

“By the fourth quarter of FY26, the low base effect will wane, and the deflator will also increase from the current low level,” the outlook report noted. 

The agency said that domestic consumption shows revival signs, with private final consumption expenditure accelerating to 7.9 per cent in the second quarter of FY26, bolstered by income tax relief and easing inflation. 

Rural consumer confidence crossed the optimism threshold of 100 in November 2025, while urban sentiment improves alongside strong future expectations, the report noted. Retail inflation is expected to remain benign, averaging 2.1 per cent in FY26, supported by food deflation and good monsoons, though precious metals and edible oil prices remain key monitorables.

CareEdge expects that the government will meet its fiscal deficit target of 4.4 per cent in FY26. 

“Capex has been upbeat, logging double-digit growth in the fiscal year so far. Revenue shortfall from slower growth in tax collections is expected to be offset by RBI’s higher dividend transfer and lower revenue spending,” it added. 

“We feel that the Centre will be able to bring down the debt to around 50 (+/- 1 per cent) by the end of FY31 from the estimated 56.1 per cent in FY25. We have based this on the assumption of nominal GDP growth averaging around 10.7 per cent in the next five years,” the report noted. 

However, challenges loom from the US tariffs denting goods exports, hitting labour-intensive sectors like gems and jewellery and textiles, according to the agency. Services exports, however, are expected to provide a cushion, helping keep the current account deficit manageable at around 1 per cent of GDP. 

“We project India’s goods exports to contract by around 1 per cent in FY26 as against a growth of 0.1 per cent in FY25. Services exports have remained resilient, driven by exports of software and business services,” it added.