Growth Forecast Slightly Downgraded, Government Spending is Key Support
According to a Reuters survey of 51 economists in June, India's economy is expected to maintain a relatively steady growth momentum in the current and upcoming fiscal years. For the fiscal year 2025-26 ending March 2026, India's GDP growth is estimated at 6.4%, slightly lower than the previous fiscal year's 6.5%. Growth expectations for the fiscal year 2026-27 are slightly raised to 6.7%, up from last month's median forecasts of 6.3% and 6.5%.
Although India remains one of the fastest-growing large economies globally, current growth is largely driven by substantial government capital expenditure. Yes Bank Chief Economist Indranil Pan points out that the investment boom led by the government is unsustainable, posing a risk of slowing momentum in the long term.
He emphasizes that private corporations continue to be sluggish in terms of investment and expansion, and the economy has not yet created enough jobs to satisfy the demands of a rapidly growing young population, which constrains per capita income growth.
Employment and Private Investment a Concern
Despite robust macroeconomic data, economists generally have a cautious outlook on employment structure and consumption capacity. With the labor market yet to exhibit adequate absorptive capacity, the slow growth of household incomes limits the role of domestic demand in driving the economy.
Pan candidly states: "Current job growth is far from supporting sustained and inclusive economic development." He notes that the lack of quality jobs in manufacturing and services exacerbates income distribution imbalances in India.
Stalemate in Tariff Negotiations May Impact Future Growth
The survey also shows that if India and the United States fail to reach an agreement before the July 9 expiration of the 90-day temporary tariff exemption, India's short-term growth prospects could face downward pressure. Sources reveal that negotiations between the two countries have stalled in several key areas, including auto parts, steel, and agricultural products.
Analysts believe that if the tariff dispute intensifies, it could affect export performance and weaken investor confidence, thereby dragging down growth momentum.
However, ANZ economist Dheeraj Nim remains optimistic. He states: "We expect a compromise on trade frictions between India and the US, therefore we have raised our growth forecast for the fiscal year 2026." But he also points out that global economic uncertainty remains significant, and more policy support is needed for India to maintain steady growth.
Indian Central Bank May Be Near a Monetary Policy Shift
On the policy front, the Indian central bank surprised markets on June 6 by cutting interest rates by 50 basis points and changing its policy stance from "accommodative" to "neutral," interpreted as a sign that the rate-cutting cycle may be nearing its end.
Of the 53 economists surveyed, 28 believe that the Indian central bank will keep the current repo rate of 5.50% unchanged in the fourth quarter; the remaining respondents predict there is still room for a 25 basis point rate cut this year.
In terms of inflation, the annual growth rate of India’s Consumer Price Index (CPI) for the fiscal year 2025 is expected to be 3.6%, possibly rising to 4.3% in the next fiscal year. Overall, inflation remains within a controllable range, leaving some room for monetary policy maneuvering.
