India’s real GDP growth is expected to hold steady at 6.5% in fiscal 2026, even as geopolitical uncertainties and trade-related disruptions, particularly US tariff actions, pose challenges, according to a report by Crisil released on Thursday.
The forecast relies on two key assumptions—another normal monsoon season and stable commodity prices. Factors such as easing food inflation, tax benefits outlined in the Union Budget 2025-26, and lower borrowing costs are likely to boost discretionary consumption, the report stated.
With fiscal stimulus normalizing and the impact of a high base gradually fading, economic growth is now stabilizing at pre-pandemic levels. Despite global headwinds, high-frequency data from the Purchasing Managers’ Index (PMI) indicates that India continues to outperform major economies.
Crisil Managing Director and CEO Amish Mehta noted that India’s economic resilience is being tested once again. However, the country has built certain safeguards against external shocks, including strong GDP growth, a low current account deficit, manageable external public debt, and robust forex reserves, which provide significant policy flexibility. While external factors may create volatility, domestic demand—both rural and urban—will remain crucial in sustaining short-term growth.
In the medium term, continued investments and efficiency improvements are expected to drive expansion. Crisil projects that both manufacturing and services will contribute to economic growth through fiscal 2031. Manufacturing growth is anticipated to average 9% annually between fiscals 2025 and 2031, compared to 6% in the pre-pandemic decade. The services sector will remain the dominant force behind economic expansion, leading to an increase in the manufacturing sector’s GDP share from 17% in fiscal 2025 to 20%.
Lower inflation and ongoing fiscal consolidation have created room for policy rate cuts. Crisil expects a 50-75 basis point reduction in interest rates over the next fiscal year, although the pace of US Federal Reserve rate cuts and weather-related risks could influence the timing and extent of these adjustments.
India has continued to widen its growth premium over advanced economies through large-scale infrastructure development and economic reforms. However, despite strong macroeconomic fundamentals, the country is not entirely insulated from external shocks. Crisil’s Chief Economist Dharmakirti Joshi cautioned that while India’s economic buffers offer stability, risks to the 6.5% growth forecast remain tilted to the downside due to uncertainties arising from the US-led tariff war.
-IANS
