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India Poised for 6%+ Growth in 2026 Despite Global Slowdown, Says IMF
India enters 2026 with remarkable economic resilience, having strong GDP growth, low inflation, robust domestic demand, and a steady inflow of foreign direct investment. Yet, the path ahead is filled with challenges such as slowing global growth, persistent geopolitical tensions, and trade policies. The key question is: Can India sustain its market momentum amid these global headwinds?
Strong Economic Fundamentals
India’s economic performance in 2025 was exceptional. The Reserve Bank of India (RBI) reported GDP growth of 7.8% in Q1 FY2025-26 and 8.2% in Q2, prompting the RBI to revise its full-year forecast to 7.3%.
This positions India as the fastest-growing major economy, with global agencies like the World Bank and IMF projecting 6.2% to 6.6% growth for 2026.
https://www.imf.org/en/publications/weo/issues/2025/10/14/world-economic-outlook-october-2025
Inflation has been impressively controlled. Consumer Price Index (CPI) inflation in October 2025 stood at just 0.25%, with food inflation at -5% YoY. The RBI forecasts inflation between 2-4% in 2026, creating room for continued monetary easing.
India’s fiscal deficit has been narrowed to 5.9% of GDP for FY2024-25, with a target of 4.5% by FY2026. Government tax reforms, such as the simplified GST structure, and expenditure rationalization are driving fiscal consolidation without undercutting growth.
On the external front, India’s foreign exchange reserves exceed $585 billion, providing adequate import cover. While the rupee faced pressure from foreign portfolio investment (FPI) outflows, overall external stability remains strong.
Exports of goods and services rose 4.8% YoY in April-October 2025, led by 10% growth in services exports.
Market Performance and Investor Sentiment
Despite global uncertainties, India’s equity markets held firm in 2025. The Nifty 50 index gained over 10% year-to-date by December, though broader markets lagged (Nifty 500 rose only 6%, small-caps fell). This “time correction” is seen as a consolidation phase rather than a downturn.
Investor sentiment was cautious due to steep 50% US tariffs on select Indian goods and weaker global cues.
However, analysts forecast a rebound in 2026 driven by improving earnings. For example, Nifty 50 companies saw 12% YoY profit growth in Q2 FY2026, and ICICI Securities expects 15% annual EPS growth through FY2028.
Global Headwinds Looming
Global growth is slowing; the IMF projects world GDP growth to ease from 3.3% in 2024 to 3.1% in 2026. imf.org
Advanced economies are expected to grow barely 1.5%, and even emerging markets just above 4% on average, well below India’s pace. The United States, in particular, faces headwinds from past interest rate hikes and persistent inflation.
US inflation remains above target, keeping the Federal Reserve in a hawkish stance. imf.org
China’s economy is also cooling. After decades of rapid expansion, China is grappling with a property downturn and subdued consumer confidence.
Its growth is expected to fall to the mid-single digits, dampening commodity prices and Asian trade flows. The World Bank warns that spillovers from a global slowdown, particularly a sharp US or China deceleration, pose a significant downside risk for South Asia’s outlook. worldbank.org
It revised South Asia’s 2026 growth down to 5.8%, the slowest in decades outside crisis years, citing “spillovers from the global economic slowdown and uncertainty around trade policy.” worldbank.org
Intensifying geopolitical risks add another layer of uncertainty. Ongoing conflicts (such as the Russia-Ukraine war) and strategic tensions (US-China rivalry) could disrupt supply chains or fuel spikes in commodity prices.
Any flare-up in the Middle East or further trade fragmentation would hit globally integrated sectors. For example, trade protectionism surged in 2025: the US imposed steep 50% tariffs on certain Indian goods, clouding India’s export outlook. reuters.com
The global financial and inflation backdrop is less than ideal. Worldwide inflation is trending down from its 2022 peak, but in the US and Europe, it is not yet fully tamed. imf.org
Major central banks are signalling “higher for longer” interest rates to ensure price stability. This tight monetary climate has already driven up bond yields and strengthened the US dollar, prompting capital outflows from emerging markets in 2025.
Sectoral Insights
IT Services
India’s IT sector saw subdued performance in 2025, with the Nifty IT index down 10%. Revenue growth slowed as US and European clients cut tech spending. However, signs of recovery emerged:
- Sequential revenue growth turned positive in Q3 2025.
- AI-related revenues surged, with TCS reporting Rs. 12,500 crore (approx. $1.5 billion) from AI services.
- Order bookings rose 26% YoY, indicating a recovery in enterprise demand.
The sector is expected to deliver 4-6% growth in FY2026-27, assuming no sharp global recession.
Manufacturing
Manufacturing is gaining ground, driven by government initiatives and domestic demand:
- Q2 FY2026 manufacturing GVA grew 8.1%.
- Electronics exports rose from $29.1 billion in FY2024 to $38.6 billion in FY2025, with projections of $46-50 billion in FY2026.
- The Purchasing Managers’ Index (PMI) hit 59.1 in July 2025.
India’s Production-Linked Incentive (PLI) schemes have attracted over Rs. 1.76 lakh crore (approx. $20 billion) in investments across sectors.
Energy and Renewables
India added 50 GW of renewable energy in 2025, surpassing its 2030 target of 50% non-fossil capacity five years early. With solar installations leading the way, this sector attracted over Rs. 2 lakh crore (approx. $24 billion) in 2025.
However, India still imports 85% of its crude oil, making it vulnerable to geopolitical supply shocks.
Agriculture and Rural Economy
A normal monsoon and record food output helped lower food inflation. Rural indicators improved:
- Tractor and two-wheeler sales rose.
- FMCG demand rebounded.
- Assuming stable weather in 2026, agriculture should grow 3-4%, supporting rural consumption and reducing inflation risks.
Capital Flows: FDI and FPI
India’s FDI inflows rose to an all-time high of $81 billion (gross) in FY2025 and could surpass $100 billion in FY2026. Major tech giants like Google, Microsoft, and Amazon committed over $70 billion collectively in 2025, with hundreds of new proposals in the pipeline.
https://economictimes.indiatimes.com
In contrast, FPI flows were volatile. Since July 2025, FPIs withdrew about Rs. 1.72 lakh crore (approx. $21 billion) from equities due to valuations, tariffs, and global risk aversion. livemeint.com
However, with valuations normalised and earnings recovering, FPIs are expected to return in 2026, especially if a US-India trade deal materialises.
Policy Support and Reforms
India’s macro policy response has been timely:
- The RBI cut repo rates by 100 basis points in 2025, from 6.25% to 5.25%.
- Government capex rose 32% YoY in April-October 2025.
- GST reform simplified tax structures and boosted consumption during the festive season.
- New trade deals with Australia, the UAE, and the UK, along with negotiations with the US, aim to boost export access.
Comparative Strength Among Markets
India’s projected 6%+ growth in 2026 far outpaces emerging market peers like Brazil (2.5%), South Africa (1.8%), and China (4-5%). imf.org
Unlike export-reliant economies, India’s growth is powered by domestic consumption (over 60% of GDP) and infrastructure investment.
With low inflation, strong reserves, and a stable financial system, India has better external buffers than many EMs.
While countries like Turkey and Argentina face currency and debt crises, India enjoys policy flexibility and investor confidence.
Conclusion
Despite a challenging global environment, India’s economic engine appears positive heading into 2026. With robust macro fundamentals, sectoral revival, and proactive policy support, India is poised to not only survive global headwinds but potentially emerge stronger.
The journey may not be smooth; volatility in exports, capital flows, or oil prices could create hiccups. But the country’s diversified growth drivers and deepening reforms suggest that India’s market momentum is built on more than optimism; it’s backed by data.