Social ,10 Apr 2025

India’s Economic Growth Projections for FY 2025-26: Navigating Promise and Pressure

As India begins a new fiscal year (FY 2025-26), the conversation around its economic trajectory has grown louder. With global uncertainties, domestic resilience, and policy reforms intersecting, India's economic growth projections have become a key focus for economists, investors, and policymakers alike.

Let’s break down what the projections are saying, the drivers behind them, and the road ahead.

 

Current Growth Projections: A Mixed Outlook

Various agencies have projected India’s GDP growth with slight variations based on evolving data points:

Institution	FY 2025-26 GDP Growth Estimate
Government of India (Economic Survey)	6.3% – 6.8%
International Monetary Fund (IMF)	6.5%
World Bank	6.7%
Asian Development Bank (ADB)	6.7%
Moody’s Analytics	6.1% (after US tariffs impact)

 

Key Growth Drivers for FY26

1. Domestic Consumption Rebound

Private consumption, especially from rural and semi-urban markets, is expected to grow on the back of:

• Higher minimum support prices (MSP) for crops.
• Expanding rural infrastructure.
• Government incentives for middle- and low-income segments.

2. Manufacturing and Services Expansion

• PLI (Production Linked Incentive) schemes are bearing fruit, especially in electronics, semiconductors, and pharma.
• Services exports, particularly in IT, fintech, and professional services, remain strong.

3. Infrastructure Push

Massive government capital expenditure continues in roads, railways, and green energy:

• The ₹11.11 lakh crore capital outlay in Budget 2024-25 (up 16.9% YoY).
• Smart cities, metro expansions, and logistics parks.

 

External Headwinds and Global Influence

1. US Reciprocal Tariffs

• In March 2025, the United States imposed a 26% reciprocal tariff on select Indian exports including:
1. Gems & jewellery
2. Pharmaceuticals and medical devices
3. Garments and textiles

Impact: Moody’s downgraded India’s GDP growth to 6.1%, citing a slowdown in export demand and investor caution.

2. Geopolitical Uncertainty

Tensions in the Middle East and ongoing trade disputes globally are inflating oil prices, increasing India's import bill, and raising fiscal pressure.

3. Global Slowdown

Advanced economies like the EU and UK are witnessing lower growth or stagnation, affecting export orders, capital flows, and outsourcing deals.

 

RBI’s Monetary Policy Response

The Reserve Bank of India (RBI) has responded proactively:

• Repo rate cut: Brought down to 6.00%, with a shift in stance to “accommodative.”
• This is the second consecutive rate cut, aimed at boosting credit, demand, and private investment.

Forward Guidance:

• Economists expect further rate cuts (50–100 bps) through the year.
• Focus remains on managing inflation while ensuring liquidity for MSMEs and startups.

 

Sectoral Outlook

Sector	Outlook FY26	Notes
Agriculture	Positive	Supported by MSP hikes, agri-tech, and weather stability
Manufacturing	Moderate to Strong	PLI impact showing, but export headwinds persist
Real Estate	Improving	Urban demand returning, driven by lower rates
Banking & Finance	Strong	Healthy asset quality, expanding credit base
Technology	Cautiously Optimistic	Strong services demand, but global IT spending mixed
Retail & FMCG	Buoyant	Urban-rural consumption recovery, e-commerce growth

 

What This Means for Businesses and Investors

1. Startups & SMEs: Easier funding climate expected, with government and bank support through credit schemes and rate cuts.
2. Exporters: Must diversify beyond the US and focus on regional markets (ASEAN, Africa).
3. Retail Investors: Continued growth in equity markets expected, especially in sectors like infra, BFSI, green energy.
4. Multinationals: India remains a top investment destination for supply chain diversification.

 

Policy Recommendations & Future Path

To maintain momentum and move toward the ambitious $5 trillion economy goal, experts recommend:

1. Accelerating labor reforms and skilling initiatives.
2. Boosting women's participation in the formal workforce.
3. Expanding digital infrastructure and fintech access in Tier 3–6 towns.
4. Incentivizing R&D, innovation, and clean energy investments.

 

Conclusion: Growth with Caution

India’s growth story in FY26 remains strong but sensitive. The fundamentals—domestic consumption, tech-led services, and infrastructure spending—are solid. However, external shocks like trade disruptions and global inflationary pressures could create volatility.

With prudent fiscal management and responsive monetary policy, India is still poised to be one of the world’s fastest-growing major economies.