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India’s FY26 GDP growth accelerated to 7.7% despite global shocks, as the credit cycle (macroprudential and monetary easing) turned and fiscal headwinds faded. In FY25, GDP grew 7.1% despite significant and simultaneous fiscal and monetary tightening, implying underlying economic momentum is much above 7.1%. In FY27, with nearly no fiscal tightening, and monetary tailwinds, pre-war, we expected real growth to be 7.5%. We have cut FY growth forecast to 6.7%, a one-time effect from the terms-of-trade shock of higher energy prices. We expect the run-rate to improve once oil prices fall.
FY26 GDP growth accelerated to 7.7% (+0.6pp) despite all macro headwinds
FY26 opened with a ‘global trade war’, amplified for India by 50% tariffs between Aug‑25 and Jan‑26, followed by the US‑Iran conflict in Mar‑26. Despite these shocks, the growth impact remained limited. As highlighted earlier, a strengthening domestic credit cycle— supported by macroprudential easing and an accommodative monetary policy stance— underpinned resilience. GST reforms also provided an additional boost to growth.
Investment growth leads consumption growth; Pvt consumption up 7.7% YoY
Fixed investment growth in FY26 remained robust at 8.2% YoY. Overall consumption grew 6.8% YoY: private consumption +7.7% vs. 5.8% in FY25), though momentum softened in 4Q amid the war (5.6% in Mar‑25). Given prevailing headwinds and our structural view, we continue to expect consumption growth to trail GDP by ~1pp annually.
On the production side, agricultural growth moderated to 3% (vs. 4.2% in FY25), industrial growth was marginally stronger by ~20bps, with robust manufacturing offsetting weaker electricity output (1.7% YoY vs. 2.9% in FY25). Services sector was the key growth driver (9.3% YoY; +1.4pp vs. FY25), led by ‘trade, hotels, transport and telecom’.
We cut our FY27 growth forecast to 6.7% vs. our-pre-war 7.5% estimate
Pre‑war momentum, given strong high‑frequency indicators, was of ~8% real GDP growth, supported by easing monetary conditions, and a steady fiscal stance. The war‑driven energy price shock creates a meaningful drag — via deteriorating terms of trade and higher import costs — partly absorbed through fiscal channels, but with the remainder weighing on demand. This, though, we see as a one-time risk. Additional risks include a weak monsoon which may result in weaker agricultural growth thus dragging output lower by 20- 30bps, but for now reservoir and groundwater levels reduce risks this year.
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