India’s FY26 growth forecast: Economy set to boom despite global trade challenges – Finance ministry outlook shows
India’s economic growth is expected to remain strong in FY 2026 even as global trade challenges persist, the finance ministry said in its monthly economic review released on Monday.The report highlighted that India’s growth will be driven by robust domestic demand, easing inflation and the positive impact of recent reforms.It further pointed out that India’s economy gained momentum in the second quarter of FY26 despite global uncertainty and recent tariff hikes imposed by the United States in August, as reported by news agency PTI.
The report added that various supply-side indicators showed steady improvement, while demand conditions strengthened due to GST reforms and festive season spending.“The growth outlook for FY26 remains strong, supported by domestic demand, favourable monsoon conditions, lower inflation, monetary easing and the positive effects of GST reforms,” the ministry said.Reflecting this optimism, the International Monetary Fund (IMF) and the Reserve Bank of India (RBI) have revised India’s growth forecast upward to 6.6% and 6.8%, respectively.The ministry highlighted that India’s trade performance remains resilient, with strong services exports helping to balance the merchandise trade deficit. Merchandise trade data for September 2025 also showed signs of export diversification amid ongoing trade deal negotiations with the US.The report noted that gross FDI inflows have increased, reinforcing India’s position as a preferred investment destination. It also said that recent measures such as GST rate rationalisation are expected to help keep inflation moderate while supporting consumption.The Monetary Policy Committee (MPC) recently retained the repo rate at 5.5% with a neutral stance, while lowering average headline inflation projections for FY26 to 2.6%, down from 3.7% estimated in June.Core inflation is also expected to remain subdued through early FY27.On the agricultural front, kharif sowing has been completed successfully, with cereals and pulses showing healthy growth. Although some damage to cash crops and oilseeds occurred due to extreme weather, the overall food production outlook remains positive, supporting rural income and market stability.In the financial sector, the report said that while bank credit growth has moderated, non-bank funding sources have increased, maintaining a steady flow of resources to the commercial sector.Looking ahead, the ministry said that lower GST rates and continued policy reforms are likely to strengthen consumption, investment and job creation. However, it cautioned that external risks from global uncertainties could weigh on export demand.The report concluded that ongoing structural reforms, including the rollout of “GST 2.0,” will help offset some of these external pressures and sustain India’s growth momentum in the coming fiscal year.
