India's Economic Outlook for 2026: Moderate Growth and Normalized Inflation Expected
India's economy is expected to maintain a 'Goldilocks' phase in 2026, with growth above long-term trends and controlled inflation, albeit less robust than 2025. GDP growth is projected to ease to 6.80% from 7.50% in 2025, with economists divided on the outlook. Inflation is expected to normalize to around 4.00%. The fiscal deficit is forecasted to narrow to 4.30% of GDP. Government borrowing is set to increase by 8.50% to ₹30.00 trillion. The current account deficit is projected at 1.06% of GDP, while capital flows remain challenging. The rupee is expected to stabilize around ₹92.00 per dollar by end-2026.
*this image is generated using AI for illustrative purposes only.
India's economy is expected to maintain its "Goldilocks" phase in 2026, characterized by growth above long-term trends and controlled inflation, though with less vigor than in 2025. According to a CNBC-TV18 poll of economists, this delicate balance may persist into the new year, albeit with some moderation across key economic indicators.
Growth Outlook Shows Mixed Signals
Economic growth is projected to ease in 2026, with economists forecasting GDP expansion of 6.80% compared to an estimated 7.50% in 2025. However, this consensus masks a divided outlook among experts.
| Growth Scenario | Projection | Supporting Factors |
|---|---|---|
| Optimistic View | Above 7.00% | GST rationalization, income tax cuts, lower interest rates, capex revival in power and real estate |
| Cautious View | Around 6.50% | Insufficient consumption strength, slower government capex, global uncertainty |
Nominal GDP growth is expected to improve to 9.70% in 2026 from 8.30% in 2025. Despite this increase, half the respondents anticipate nominal growth remaining below 9.50%, significantly short of the previous decade's average exceeding 11%.
Inflation Expected to Normalize
After subdued levels in 2025, inflation is projected to normalize in 2026. The poll indicates CPI inflation may reach 4.00%, an increase from the 1.90% recorded in 2025.
| Inflation Outlook | Projection Range | Economist Distribution |
|---|---|---|
| Benign Scenario | Around 3.80% | 50% of respondents |
| Moderate Scenario | 4.00% - 4.50% | 50% of respondents |
Across all scenarios, economists expect consumption growth to outpace investment, with public capital expenditure slowing and private capex remaining cautious.
Fiscal Position and Debt Concerns
The government is expected to continue its fiscal consolidation path, with the fiscal deficit projected to narrow to 4.30% of GDP in 2026 from 4.40% in 2025. This trajectory aligns with the long-term consolidation roadmap.
A significant policy shift may emerge from the upcoming 16th Finance Commission report, potentially redirecting focus from fiscal deficit targets to overall debt-to-GDP levels. With India's debt currently around 84% of GDP, pressure is mounting to approach the 80% threshold over the medium term.
Bond Market Dynamics and Capital Flows
Government borrowing requirements are set to increase in 2026. The Centre and states are expected to raise at least ₹30.00 trillion through bonds and state development loans, representing an 8.50% increase from ₹27.70 trillion in 2025.
| Bond Market Indicators | 2025 | 2026 | Change |
|---|---|---|---|
| Total Borrowing | ₹27.70 trillion | ₹30.00 trillion | +8.50% |
| RBI Support | Active OMOs expected | Continued intervention | Ongoing |
| 10-year Yield Outlook | Current levels | Higher | Upward pressure |
Most economists anticipate the RBI will maintain active participation in the bond market through open market operations to support demand absorption.
External Sector Stability with Capital Flow Challenges
India's external position is expected to remain relatively stable, with the current account deficit projected at 1.06% of GDP in 2026, largely unchanged from current levels. Strong services exports, particularly from global capability centres, and steady remittances continue providing support.
The capital account presents greater challenges. Foreign portfolio investors withdrew $15.00 billion in 2024 and an estimated $17.00 billion in 2025, creating balance of payments deficits. For 2026, economists forecast cautious optimism with net inflows of $7.00-8.00 billion, though projections range from potential inflows of $20.00 billion to barely positive flows.
Currency and Key Uncertainties
The rupee, which depreciated nearly 6% against the dollar in 2025 due to persistent capital outflows, is expected to stabilize. Economists project the currency will end 2025 at ₹90.40 per dollar and weaken marginally to around ₹92.00 per dollar by end-2026.
Two major uncertainties could significantly impact these projections:
- The potential for an India-US trade deal, which economists consider crucial for sustaining growth and investor confidence.
- Upcoming statistical revisions. The Ministry of Statistics is expected to unveil new GDP and CPI series with a revised 2022-24 base in February, potentially leading to significant revisions across economic indicators.
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