NewsStocksIndia's GDP Growth Expected to Moderate to 6.8% in FY27, Limited Rate Cut Scope: Goldman SachsIndia's GDP Growth Expected to Moderate to 6.8% in FY27, Limited Rate Cut Scope: Goldman Sachs
Goldman Sachs forecasts India's economic growth to slow to 6.8% in FY27 from an estimated 7.3% in FY26, while government data shows 7.4% growth for FY26. The brokerage expects inflation to reach 3.90% in 2026, close to RBI's 4% target, limiting rate cuts to just 0.25%. Private capital expenditure remains subdued, impacted by US tariff policies, while fiscal deficit is projected to narrow to 4-4.2% in FY27.
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Goldman Sachs has projected a moderation in India's economic growth trajectory, forecasting GDP expansion to slow to 6.8% in FY27 from an estimated 7.3% in FY26. However, the government's national accounts data released Wednesday shows a higher FY26 growth estimate of 7.4%, indicating some variance in projections.
Growth and Investment Outlook
The foreign brokerage firm expects real GDP growth of 6.7% in calendar year 2026 and 6.8% in FY27. A key concern highlighted in the report is the subdued nature of private capital expenditure, which has remained weak in recent years and is crucial for accelerating economic growth.
| Parameter | Projection |
|---|---|
| Real GDP Growth (CY 2026) | 6.7% |
| Real GDP Growth (FY27) | 6.8% |
| Headline Inflation (2026) | 3.90% |
| Bank Credit Growth (2026) | 13% |
The report notes that US tariff policies have impacted capital expenditure decisions in 2025, adding another layer of complexity to the investment environment.
Inflation and Monetary Policy Constraints
Goldman Sachs anticipates headline inflation to reach 3.90% in 2026, positioning it very close to the Reserve Bank of India's target of 4%. This proximity to the inflation target creates policy constraints, leaving limited scope for further rate cuts by the central bank.
The brokerage suggests that only a marginal 0.25% rate cut remains possible, contingent on persistent US tariff-related uncertainty extending beyond the first quarter and negatively impacting growth. Any rate cuts, combined with GST rationalization, are expected to boost urban demand and drive bank credit growth to 13% in 2026.
Fiscal and External Sector Projections
On the fiscal front, Goldman Sachs expects the government to continue its consolidation path, projecting the fiscal deficit to narrow further to 4-4.2% in FY27. The report suggests that fiscal tightening will pose a "lesser drag" on GDP growth in 2026 compared to previous periods.
| Economic Indicator | Projection |
|---|---|
| Fiscal Deficit (FY27) | 4-4.2% |
| Current Account Deficit (2026) | 1% |
| USD/INR (3 months) | 89.50 |
| USD/INR (6 months) | 91.00 |
| USD/INR (12 months) | 91.00 |
Regarding external sector dynamics, the brokerage provides some optimism for the rupee, suggesting the worst may be over for the currency that has recently depreciated to all-time lows. The current account deficit is estimated at 1% in 2026, supported by expectations of oil prices remaining at lower levels.
Goldman Sachs forecasts USD/INR at 89.50, 91.00, and 91.00 over the next 3, 6, and 12 months respectively, although the firm notes that a prolonged delay in concluding a US-India trade deal would likely worsen the balance of payments outlook and keep the currency under pressure.
Economic Challenges and Policy Response
The report underscores the challenging economic environment characterized by subdued private investment, external uncertainties from trade policies, and limited monetary policy flexibility. The combination of these factors suggests a more cautious growth trajectory for the Indian economy in the coming years, requiring careful policy calibration to support economic momentum while managing inflationary pressures.
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