 "GDP")
India’s economy is expected to grow 6.9 per cent in 2026-27 (FY27), with ratings agency India Ratings & Research (Ind-Ra) describing the year as a “Goldilocks” phase of stable growth and low inflation.
This comes as a combination of firm domestic demand, easing pricing pressures and renewed reforms push helps cushion external shocks, according to Ind-Ra’s latest outlook for the Indian economy.
The agency projects nominal gross domestic product (GDP) growth at 9.7 per cent in FY27 with the real GDP growth at 7.4 per cent in FY26.
“The three main tailwinds, as of now are — the economy is having an income tax waiver in FY26 Budget, the goods and services tax (GST) rate rationalisation and three free trade agreements with New Zealand, UK and Oman,” said Devendra Kumar Pant, chief economist and head of public finance at India Ratings.
The agency projects headline consumer price index (CPI) inflation to average 2.1 per cent in FY26 before rising to 3.8 per cent in FY27. It would be helped by lower pricing pressures across broad consumption items and disinflationary impact of GST rate rationalisation, even as weather-related risks remain a concern.
On policy, the agency sees “limited space for rate cut” and notes that “a further 25 basis points (bps) rate cut in the current easing cycle is possible, but is data dependent.”
Private final consumption expenditure, which makes up 56.5 per cent of GDP, is forecast to grow 7.6 per cent in FY27. It would be supported by improving real wage growth and a narrowing rural–urban demand gap.
One critical support for consumption is the turnaround in real rural wages.
According to the agency, rural agricultural wages, deflated by CPI, returned to positive territory in recent quarters after a prolonged squeeze, with aggregate real wage growth outpacing employment growth across most sectors over FY18–FY24.
Gross fixed capital formation is projected to rise 7.4 per cent in FY26 and 7.8 per cent in FY27, with investment demand still “public sector dominated.” But it would be increasingly aided by household real estate investment and a gradual improvement in large private corporate capex.
Ind-Ra cautions that “low interest rates” are necessary but “not a sufficient” condition for a full-fledged private capex cycle. It argued that stronger and more predictable demand and policy stability will be critical.
“In investment demand, so far we have seen that it has mostly been the public sector dominated with the state and the central government leading from the front,” said Paras Jarai, associate director and economist at Ind-Ra.
External demand is expected to do better in FY27 than in FY26. It would be aided by the recently-concluded trade agreements with the UK, New Zealand and Oman, and the prospect of a US trade deal later in the financial year.
Fiscal policy is expected to remain a key macro stabiliser, with the Centre’s fiscal deficit projected to narrow from 4.4 per cent of GDP in FY26 to 4.1 per cent in FY27. And, debt may decline from 56.3 per cent to 55.5 per cent of GDP over the same period.
Ind-Ra sees the debt ratio increasingly becoming the anchor for fiscal policy, arguing that a gradual reduction is “very important for long-term growth of the Indian economy.”
