Strong Fundamentals to Sustain India’s Growth Momentum: Report

India’s economy is expected to consolidate on its long-term growth trajectory in 2026, with real GDP growth moderating to 6.6 per cent and inflation rising to 4.2 per cent, the report said.

The outlook follows an expected strong performance in 2025, when India is estimated to record 7.8 per cent GDP growth with inflation at 2.2 per cent. MEI noted that the economy is shifting from above-trend growth towards a more sustainable pace.

Domestic policy measures are expected to support economic activity. Broadly, the Indian economy continues to be underpinned by supportive policies, favourable demographics and increasing digitalisation.

According to the report, front-loaded monetary easing, income tax reforms and the rationalisation of goods and services tax (GST) rates could help boost personal consumption.

In addition, targeted export support measures may help mitigate downside risks arising from global disruptions and volatility in external markets.

MEI also noted that disinflationary impulses from lower global goods and commodity prices could strengthen India’s growth resilience. Structural factors remain supportive, with digitisation, technological progress and favourable demographics highlighted as key long-term drivers.

However, external headwinds persist. The report cautioned that high US tariffs may pose challenges to labour-intensive sectors such as textiles, gems and jewellery.

Risks to the IT services sector were also highlighted, with tighter immigration norms potentially affecting labour mobility, travel flows and remittances. As a result, progress on the ongoing US-India Bilateral Trade Agreement will be closely monitored in 2026.

“The progress on the ongoing US-India trade deal will be closely watched. These shifts also present opportunities for India to diversify supply chains and expand goods trade through bilateral and regional agreements, fuelling growth in global capability centres and Tier 2-3 cities,” the MEI report said.