Goldilocks situation of high economic growth and low inflation is likely to continue into FY27: India Ratings

India's current Goldilocks situation of high economic growth and low inflation is likely to continue into FY27 as well, India Ratings and Research has forecast. It has projected GDP growth at 7.4% this fiscal and 6.9% next fiscal. The agency has also estimated that average retail inflation will remain below the Reserve Bank of India’s tolerance limit of 4% at 2.1% this fiscal and at 3.8% in FY27.

It has pegged nominal GDP growth in FY26 at 9% and at 9.7% in FY27.

“The agency believes domestic reforms, including the income tax cut in the FY26 Budget, goods and services tax (GST) rationalisation, and three foreign trade agreements (Oman, UK, and New Zealand), will help the economy withstand global uncertainties caused mainly by the US tariffs,” it said in its Economic Outlook FY27 that was released on Tuesday. GDP growth in the second half of FY27 is likely to be above 7% due to the base effect.

The GDP growth assumption for FY27 is a base case scenario and includes the current 50% tariff by the US on Indian goods. “If and when the trade deal with the US is signed, it will benefit the Indian economy,” said Devendra Kumar Pant, Chief Economist and Head Public Finance, India Ratings and Research.

On the global front, the US unilateral tariff hikes have increased the global economic uncertainty, leading to the expectations of slower global growth in 2025, the agency said, adding that the impact is now expected to be lower than estimated earlier. The weighted average tariff on goods imported by the US increased to 18.55% as of end-December 2025 from 2.56% on January 1, 2025.

The forecast comes a day ahead of the release of the first advance estimates of GDP growth for FY26 by the Ministry of Statistics and Programme Implementation on January 7.

The agency also expects private final consumption expenditure (PFCE), which accounts for about 55.9% of GDP (Q2FY26) from the demand side, to grow 7.6% YoY in FY27 as against an estimate of 7.4% in FY26 and 7.2% in FY25. “More than half of PFCE is towards services. Key factors leading to strong consumption demand are strong services growth, low inflation leading to real wage rate turning positive (rural agricultural wages from Q2FY25 and urban minimum wages from Q4FY25), income tax cut announced in FY26 Budget, and GST rationalisation,” it said.

The base year for both GDP and consumer price index (CPI) will be changed to 2022-23 and 2024 from 2011-12 and 2012, respectively, in the coming months, and the present economic outlook will be revised once the new base year data is released, it said.