Outlook 2026: India's Macros In Rare 'Goldilocks' Setting—GDP Growth At Decadal High Of Over 7%

India recently surpassed Japan to become the world's fourth-largest economy with a size of $4.18 trillion, and is poised to overtake Germany to become the third-largest by 2030. With consistently strong economic growth numbers, India is also the world's fastest-growing major economy.

Analysts say India's present macro-economic situation presents a rare “goldilocks setting'', marked by a period of high growth and low inflation.

India's economy expanded by 8.2% in the July-September quarter of the current financial year, the fastest growth in six quarters, led by strong manufacturing and services output. The GDP print in the second quarter was far higher than 5.6% during Q2 of FY25 and 7.8% in the June quarter.

Most economists and brokerages have projected India's GDP growth for FY26 above 6.9%, while the FY27 economic growth forecasts exceed 7%. The robust domestic demand, supportive interest rates, tax cuts, and strong government spending have contributed to the decadal high GDP growth.

The Reserve Bank of India’s Monetary Policy Committee raised the FY26 economic growth estimate to 7.3% from 6.8% earlier and reduced the retail inflation forecast to 2% from 2.6% earlier. RBI is tasked by the government to ensure that retail inflation remains at 4% with a margin of 2% on either side.

After the Q2 GDP surpasses estimates, Chief Economic Advisor V Anantha Nageswaran had then announced that India's full-year economic growth will likely be revised to 7% or higher from the current projection of 6.5%.

"The growth rate of 8.2% was out of even many sophisticated estimates... We were concerned in August on negative impact of US tariffs. We are now talking about 7% growth rate or higher," the CEA said after Q2 GDP data.

Fitch Ratings raised its forecast for India’s GDP growth for FY26 to 6.9% from 6.5%, citing robust domestic demand. The rating agency expects strong consumer spending and looser financial conditions to support investment.

Going forward, India’s growth is likely to be above trend in FY27, driven by structural and regulatory reforms, lower borrowing costs, accelerated capital formation, and a cyclical boost from policy easing, as per Neelkanth Mishra, Chief Economist, Axis Bank & Head - Global Research, Axis Capital.

The lead economist eyes India's real GDP growth at 7.5% for FY27 and headline inflation may average at 4%, which meets the target set by the RBI. "In FY27, we expect fiscal headwinds will be a lot more moderate. But, the monetary easing can provide tailwinds so growth will be above trend. That's why, India's FY27 real GDP growth is pegged at 7.5%," said Mishra to NDTV Profit.

RBI's monetary policy panel also significantly lowered the overall inflation projection for FY26 to 2% from 2.6% estimated earlier as the economy continues to witness rapid disinflation. India's retail inflation dropped to a historic low of 0.25% in October, marking the lowest level since the CPI series was introduced. In November 2025, inflation rose to 0.71%.

Axis Bank forecasts that the FY27 headline inflation is expected to average 4%. The median inflation has been stable near 3% for 18 months signals persistent slack in the economy and policy rates have likely bottomed. Mishra of Axis Bank said food inflation vs core inflation is at the ''lowest band, so it is going to rise from here'', but doesn't expect core inflation to accelerate much till labour market slack is full, which is sometime away.

Axis Bank expects the current account deficit to widen a notch, to 1.2% of GDP in FY26 and 1.3% in FY27, while the surge in capital outflows seen in 2Q/3Q of FY26 will likely abate. Lower inflation narrowed the gap between nominal and real growth. The nominal GDP grew 8.7% compared to 8.3% in the year-ago period.

''The impact of consumer tax cuts and ample food supply could lead to inflation averaging below 3% in the remaining part of the fiscal,'' said Sakshi Gupta, principal economist at HDFC Bank. "This should provide room for the RBI to deliver another rate cut in ,February if growth shows signs of losing momentum post the festive season," she said.

CEA V Anantha Nageswaran also said that the size of Indian economy is expected to cross $4 trillion in the current fiscal. According to government data, in November, the unemployment rate reduced to 4.7% vs. 5.2% in October 2025, making it the lowest level since April 2025 (5.1%). However, economists have criticised the weak wage growth and labor market ease.