17.11.2025
India’s economy is projected to continue expanding at a strong pace, driven primarily by resilient domestic demand. Real GDP growth is expected to moderate gradually from 6.8% in FY2025-26 to 6.5% in FY2026-27 and 6.4% in FY2027-28, as fiscal support is gradually withdrawn and external demand remains subdued. Private consumption and investment are forecast to remain the main growth drivers, supported by easing inflation, monetary tailwinds, GST rationalisation, and improving rural conditions. External headwinds and new U.S. tariffs are expected to weigh on exports and lead to a mild deterioration in the current account balance. Public finances are projected to improve gradually, with debt ratios edging down as growth remains robust.
| Indicators | FY2025-26 | FY2026-27 | FY2027-28 |
|---|---|---|---|
| GDP growth (%, yoy) | 6.8 | 6.5 | 6.4 |
| Inflation (CPI, %, yoy) | 2.3 | 3.5 | 4.0 |
| Unemployment rate (%) | 5.1 | 5.1 | 5.1 |
| General government balance (% of GDP) | -7.1 | -7.0 | -6.9 |
| Gross public debt (% of GDP) | 81.7 | 81.2 | 80.3 |
| Current account balance (% of GDP) | -0.6 | -1.0 | -1.3 |
Growth outlook: domestic demand remains the engine
Private consumption is projected to expand by 6.8% in FY2025-26, 6.6% in FY2026-27 and 6.4% in FY2027-28, supported by easing inflation, steadier energy prices, rising employment, and GST rationalisation (lower rates on selected goods/services and streamlined compliance). Investment is expected to grow by around 7% annually, backed by public capital expenditure (transport, energy, digital infrastructure), improving business sentiment, production-linked incentive schemes, simplified import duties on key inputs, and monetary easing (policy rates already cut by more than 100 bps since early 2025).
External position: mild deterioration as exports face headwinds
Net exports are expected to remain a drag as goods exports face subdued global demand and new U.S. tariffs affecting sectors such as textiles and machinery. Services exports (including IT and business services) are expected to partly offset the weakness, while import growth remains firm due to strong domestic investment and energy needs. The current account balance is projected to deteriorate gradually to around -1.4% of GDP by FY2027-28.
Inflation and fiscal stance: contained inflation, gradual consolidation
Headline inflation is projected at 2.3% in FY2025-26, then to rise to 3.5% in FY2026-27 and 4.0% in FY2027-28 as domestic demand strengthens. Fiscal consolidation is expected to proceed gradually, with the fiscal framework shifting towards debt-to-GDP as the primary anchor from FY2026-27; deficits are projected to trend down slowly, and debt to edge lower over the forecast horizon.
Source: European Commission. European Economic Forecast, Autumn 2025.
