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India’s Economy Projected to Grow by 6.6% in FY26, Driven by Investment Revival
Team Finance Saathi
19/Dec/2024
What's covered under the Article:
- India’s GDP is forecast to grow by 6.6% in FY26, supported by robust investments.
- Retail inflation is expected to decline to 4.4% in FY26, signaling easing monetary conditions.
- Risks like a tariff war and capital outflows could impact growth and trade deficit projections.
India’s economy is on track to rebound, with India Ratings and Research (Ind-Ra) projecting a 6.6% GDP growth rate for FY26, up from 6.4% in FY24. This optimistic forecast comes as the nation recovers from a cyclical slowdown over the past three quarters, setting the stage for renewed economic momentum by the December quarter.
Key Drivers of Growth in FY26
Investments will continue to play a pivotal role, much like the trends observed in FY22 and FY24. Despite recent headwinds such as private sector capital expenditure (capex) weaknesses and the dampening effects of the May 2024 general elections, Ind-Ra anticipates a strong revival. The base effect from earlier periods and the lingering aftereffects of COVID-19 had weighed on growth until FY24, but the economy is poised to rebound as these factors wane.
Monetary and Fiscal Conditions
While monetary tightening is expected to ease in FY26, fiscal and external challenges will persist. Ind-Ra forecasts retail inflation to average 4.4% in FY26, an improvement from 4.9% in FY25, indicating a gradual stabilization of price pressures. The timing of policy rate cuts will be crucial and will depend on key factors such as the FY26 Union Budget, inflation trends, and broader economic conditions.
Trade Deficit Outlook
India’s merchandise trade deficit is projected to widen to US$ 308 billion (Rs. 26,15,536 crore) in FY26, compared to US$ 277.4 billion (Rs. 23,55,681 crore) in FY25 and US$ 244.9 billion (Rs. 20,79,691 crore) in FY24. This increase underscores the challenges of balancing robust domestic growth with external trade dynamics.
Economic Risks to Watch
Chief Economist Mr. Devendra Kumar Pant noted that while FY26 growth is expected to match India’s best decadal performance from 2010-11 to 2019-20, several risks could cloud the outlook:
- A potential tariff war could disrupt global trade dynamics.
- Capital outflows, driven by a strengthening US dollar, could exert pressure on India’s foreign reserves and currency stability.
India’s Path to Economic Resilience
The FY26 GDP forecast signals optimism for India’s economic trajectory. Investments, particularly from the private sector, will play a crucial role in driving sustainable growth. The anticipated easing of monetary conditions is also expected to support industries, boost consumer confidence, and enhance India’s global competitiveness.
The Upcoming IPOs in this week and coming weeks are Ventive Hospitality, Senores Pharmaceuticals, Carraro India, Solar91 Cleantech, Unimech Aerospace, Rosmerta Digital, Indo Farm, and Avanse Financial.
The Current active IPO is Transrail Lighting, Mamata Machinery, DAM Capital Sanathan Textiles, Concord Enviro, Newmalayan Steel, Identical Brain Studios and NACDAC Infrastructure.