India to Grow by 6.4 Pc in FY26, Services Trade to Maintain Rapid Growth: UN
The economy is projected to grow by 6.4 per cent in 2026, supported by continued public spending, private investment and a weakening dollar alleviating its trade deficit
Chennai: UNCTAD has projected 6.4 per cent growth for India in FY26 and FY27 on robust public spending and private investment outlays. India is expected to maintain a rapid growth in services trade due to the dynamism stemmed from commercial services.
“India has been the world’s fastest-growing major economy since 2021. Economic activity is estimated to expand by 6.4 per cent in 2025 through continued elevated public capital expenditure, easing financing conditions and declining inflation. In fiscal policy, the government planned a public deficit of 4.4 per cent of GDP over the current fiscal year, amid tax cuts and corporate tax rebates,” said the UN's trade and development body in its report.
The economy is projected to grow by 6.4 per cent in 2026, supported by continued public spending, private investment and a weakening dollar alleviating its trade deficit.
The economic activity across South Asia remains dynamic and driven by its largest economy, India.
In August, S&P Global upgraded the sovereign credit rating from “BBB-” to “BBB”, citing robust fundamentals, disciplined fiscal governance, improved policy frameworks and market dynamism. This upgrade is likely to bolster investor confidence and burgeoning transnational corporate investment plans, although tariff policy changes could temper enthusiasm.
In monetary policy, the Reserve Bank of India initiated cuts to the repo rate in 2025. It remained unchanged at 6.5 per cent for several years before being cut by 100 basis points between February and October. Inflation is likely to hover around 4 per cent in 2025, well within the Reserve Bank’s target band of 2 to 6 per cent.
Externally, its relatively low ratio of goods exports to GDP limits the exposure of India to global trade effects. Tariffs imposed by the United States, however, could have an impact on critical manufacturing sectors, such as apparel and electronics, potentially shaving up to 0.3 percentage points from GDP growth.
However, China and India, the two largest services providers among developing countries, recorded a 17 per cent and 10 per cent on-year increase, respectively, during the second quarter of 2025.
In India, dynamism stems from commercial services related to finance, intellectual property, telecommunications, computing and information as well as other business subcomponents. Fast growth in these suggests that India is more likely to maintain rapid growth in services trade. Unlike transport and travel, these components are less vulnerable to sharp fluctuations caused by price changes, such as in freight rates, or shifts in passenger volumes, which until very recently were still affected by the lingering impact of the COVID-19 pandemic.
Capital markets have exhibited resilience as domestic institutional investors have compensated for most foreign outflows, significantly reducing their disruptive impact.
