India to remain fastest-growing major economy with 6.6% GDP growth in 2025-26 despite global headwinds

Growth outlook and headline forecast

According to the latest World Economic Outlook published by the IMF, India’s real GDP is expected to grow by around **6.6 %** in the fiscal year 2025-26.While this is a slight upward revision from previous estimates, it also reflects the balancing act the economy now faces: strong domestic momentum contrasted with global uncertainty.

The revision comes despite significant external challenges. The IMF notes that the strong carry-over from the first quarter — when growth hit 7.8 % year-on-year in Q1 of FY2025-26 — more than offset adverse effects from rising U.S. tariffs on Indian exports.  For 2026-27, however, the IMF projects growth to moderate to about 6.2 %.

Domestic demand: the engine of resilience

India’s growth story today is less about external demand and more about internal engines. Private consumption, particularly in rural and semi-urban areas, investment in infrastructure, and robust service-sector expansion are key. According to Deloitte’s latest outlook, India grew by 7.8 % in April-June quarter, underlining the strength of the domestic base.

The shift away from export-driven growth to one anchored in consumption and investment provides a buffer against the global slowdown. This has also prompted both the central bank and the government to emphasize domestic demand stimulation, structural reforms, and broad-based infrastructure spending.

Export headwinds and trade-tariff risks

Despite the favourable domestic backdrop, India’s export sectors face mounting pressures. The US has raised tariffs on Indian goods, and global trade slowdowns threaten key sectors such as textiles, gems, jewellery and electronics. The IMF acknowledges that while India is resilient, risks remain tilted to the downside—especially from external shocks.

Indian policymakers are responding with a greater focus on import-substitution, export diversification, deepening value chains and improving competitiveness. However, in the near-term, the drag from tariffs and global demand weakness warrants caution.

Structural reform agenda and investment challenge

The growth forecast also implicitly assumes continuation of structural reforms: liberalisation, privatization, regulatory improvements, financial-sector stability and enhanced governance. India’s ability to sustain 6–7 % growth over the medium term depends significantly on raising investment rates, improving productivity and channeling capital into manufacturing and services.

The finance ministry has emphasised that India should aim for around 8 % growth annually over the next decade to meet its ambitions of developed-nation status by 2047. This would require boosting the investment-to-GDP ratio from about 31 % to 35 % or more and increasing labour-force participation.

Fiscal and macro-policy implications

Maintaining macro-economic stability will be vital. Inflation, while relatively contained, could re-emerge as a risk if global commodities spike or domestic demand overheats. The IMF still projects India’s consumer-price inflation at around 2.8 % for 2025.

On the fiscal front, high public debt and deficits remain structural concerns. While fiscal discipline is broadly maintained, new tax cuts and direct-benefit schemes may weaken revenue growth. Rating agencies such as Moody’s Investors Service and S&P Global Ratings have flagged that a clearly credible path to lower debt is a pre-condition for upgrades.

Sectoral forces: manufacturing, services and infrastructure

Services remain the largest contributor to GDP growth, with IT-services, financial services, retail, logistics and real-estate playing key roles. Manufacturing is being pushed via production-linked incentives and import-substitution schemes. Infrastructure investment—roads, metros, ports, logistics hubs—is seen as a dual engine for growth and job creation.

However, challenges persist: manufacturing faces global supply-chain shifts, competition from Vietnam and Bangladesh in labour-intensive goods, and rising input costs. The growth forecast assumes these sectors scale up without major disruption.

Risk-factors and downside scenarios

India’s positive outlook is not without caveats. Key risks include:

• Global slowdown or recession: A sharper-than-expected slowdown in major economies (US, EU, China) would reduce export demand, foreign-investment inflows and weigh on growth.
• Trade-policy shocks: Further escalation of trade barriers or supply-chain realignments hurting India’s export sectors and manufacturing competitiveness.
• Commodity/energy price shocks: A sudden spike in oil prices could raise input costs, inflation and import bills, reducing the fiscal space and consumption growth.
• Fiscal slippages or banking stress: High leverage in parts of India’s banking system or state-government finances could trigger credit-tightening and slower investment growth.
• Institutional/regulatory bottlenecks: Delay in land-acquisition, infrastructure implementation, or lack of reform progress could stymie investment and job creation, limiting growth potential.

India in the global ranking and implications

With the 6.6 % forecast, India is positioned ahead of peer emerging economies and is projected to remain the fastest-growing major economy. Analysts point out that this growth will boost India’s share in global GDP, attract foreign capital and increase its geopolitical weight in Asia-Pacific.

For global investors, India offers a relatively favourable growth-risk trade-off in a world of moderate growth. For domestic policymakers, the mandate is clear: maintain momentum, broaden growth, increase inclusivity, and ensure resilience to external shocks.

Policy take-aways for stakeholders

For policymakers, the priority is to keep reinforcing structural reforms, deepen capital markets, upgrade infrastructure, expand manufacturing competitiveness and foster inclusive growth. For businesses and investors, this is a cue to assess India’s mid-term horizon favourably, but to remain agile around export-and-supply-chain risks. For educators, labour-market stakeholders and social sectors, the challenge remains ensuring the growth translates into jobs, productivity gains and broad-based prosperity.

Conclusion

In conclusion, India entering the fiscal year 2025-26 with a forecast of 6.6 % growth is an encouraging signal. It reflects the strength of domestic demand, structural reform momentum and policy support even amid uncertain external conditions. However, sustaining this performance and moving toward the aspirations of 8 % plus growth will require focused action on investment, productivity, governance and external resilience.

India’s growth story remains intact, but as the IMF cautions, the next phase will test the country’s ability to convert opportunity into sustainable outcomes.