India Economy and Forecast

India’s Economy in 2025 and Prospects for 2026 

11.12.2025

India entered 2025 with unmistakable momentum. Even as global growth slowed and geopolitical tensions intensified, India reaffirmed its position as one of the world’s fastest-expanding major economies—powered by energetic domestic demand, proactive policy moves, and economic fundamentals that continue to show remarkable resilience. Global institutions broadly agree: India is expected to outperform most large economies in the near term.

FY 2025–26: A Year of Strong, Broad-Based Growth

Updated projections for FY 2025–26 place India’s growth firmly in the mid-6% to low-7% range. The IMF forecasts 6.6% for FY26, pointing to India’s deep consumer base as a stabilizing force amid external turbulence. Deloitte forecasts an even stronger 6.7% to 6.9%, citing higher disposable incomes due to recent tax adjustments. The Asian Development Bank, encouraged by early-year momentum, upgraded its estimate to 7.2%.

Across these projections, one theme stands out: India’s domestic market is driving the story. Consumer spending held strong even as global demand faltered, while GST recalibrations helped absorb external shocks.

A Note on Growth Data Credibility

India’s headline GDP figures have also sparked healthy debate. Some economists question whether the current growth numbers fully capture on-ground realities, highlighting issues like methodology changes, inconsistencies in the informal sector’s measurement, and delays in corporate reporting. While these critiques suggest the possibility of mild overstatement, global institutions—including the IMF, ADB, and World Bank—continue to rely on standard models and remain confident in India’s broad economic trajectory. The debate reflects not a dismissal of India’s progress but a call for continued upgrades to statistical systems as the economy expands.

Headwinds: Trade Tensions, Capital Flight, and Financial Market Pressures

2025 was marked by escalating trade tensions. U.S. tariffs on Indian exports surged to levels as high as 50% in certain categories—particularly textiles, gems, jewelry, and leather goods. Export volumes in these segments declined sharply, and economists estimate a potential GDP impact of 0.3%–0.5%, calling it one of India’s most significant external risks.

At the same time, capital flight emerged as a subtle yet growing concern. Rising global interest rates, geopolitical anxiety, and investor risk aversion triggered intermittent outflows from India’s equity and debt markets. Although India’s sizeable domestic investor base helped stabilize markets, periods of foreign capital withdrawal increased volatility and put pressure on the rupee. This underscores the need for sustained policy consistency, stable regulation, and efforts to deepen India’s financial markets.

Labor Market Transitions: AI, Automation, and Job Challenges

The rapid spread of AI and automation added another layer of complexity in 2025. While India’s tech sector embraced AI as a productivity booster, economists warned that millions of routine, back-office, and service roles could face disruption in the coming years. This includes entry-level IT positions, processing jobs in finance and insurance, and administrative roles across industries. India faces the dual challenge of equipping its large young workforce with future-ready digital skills while creating enough high-quality jobs to absorb new entrants. Policymakers and industry leaders now view workforce reskilling, vocational training, and digital literacy as urgent national priorities.

A Turning Point: India’s Long-Term Growth Pivot

Beyond near-term challenges, India’s long-term trajectory remains compelling. McKinsey identifies 18 high-potential “future arenas”—from electric vehicles and semiconductors to AI-driven services and space technology—that collectively could generate up to $2 trillion in revenues by 2030. These sectors represent a decisive pivot toward innovation-driven growth.

Challenges at the Core

Despite strong fundamentals, hurdles persist. Private investment remains uneven, still heavily reliant on government spending. Structural barriers—such as infrastructure gaps, complex land acquisition processes, and outdated labor regulations—continue to weigh on ambitions for higher, sustained growth. Addressing these bottlenecks is essential for unlocking India’s full productive capacity.

The Outlook for 2026: Optimism with a Dose of Realism

Looking ahead, FY27 growth is projected to fall between 6.2% and 7.2%, with the ADB expecting 6.5%. India’s outlook remains positive, supported by:

• Strong and resilient domestic consumption
  
  

• Rising contributions from advanced technology and manufacturing sectors
  
  

• Continued policy support for infrastructure and production-linked incentives
  
  

Yet external risks—trade tensions, capital flows, global demand softening—and internal pressures—AI-related job transitions, investment bottlenecks—will require careful navigation.

Still, with its dynamism, scale, and reform momentum, India is poised to remain one of the most influential engines of global economic growth through 2025 and into 2026.

SACE. 11.12.2025