India's economic outlook 2026: Moderate growth, normalised inflation

India’s economy is expected to retain its “Goldilocks” character in 2026, with growth staying above long-term averages while inflation remains broadly under control. However, the pace of expansion is likely to cool compared to the previous year, reflecting softer consumption, cautious private investment and tighter global financial conditions.

According to a CNBC-TV18 poll of economists, the balance between growth and price stability may persist, but with less vigour across key macroeconomic indicators.

Growth outlook shows divided economist views

Economic growth is projected to ease in 2026, with economists forecasting GDP expansion of around 6.80%, compared with an estimated 7.50% in the preceding year. Beneath this headline figure lies a split in expectations.

The optimistic camp expects growth to remain above 7.00%, citing possible GST rationalisation, income tax relief, lower interest rates and a revival in capital expenditure across power and real estate. More cautious economists, however, see growth closer to 6.50%, pointing to weak consumption demand, slower government capex and persistent global uncertainty.

Nominal GDP growth is expected to improve to about 9.70% from 8.30% earlier. Even so, half of those surveyed believe nominal growth will remain below 9.50%, well short of the previous decade’s average that exceeded 11%, underscoring concerns about underlying demand strength.

Inflation expected to normalise after unusually low base

After an unusually benign phase, inflation is expected to move closer to the central bank’s comfort zone. Economists in the poll project CPI inflation around 4.00% in 2026, up from the exceptionally low 1.90% recorded earlier.

Half the respondents expect inflation to settle near 3.80%, while the rest see a range of 4.00–4.50%. Across scenarios, consumption growth is expected to outpace investment, with public capital expenditure slowing and private capex remaining measured rather than aggressive.

Fiscal consolidation continues, debt focus sharpens

The government is expected to stay on its fiscal consolidation path, with the fiscal deficit projected to narrow to about 4.30% of GDP from 4.40% earlier. This trajectory is broadly consistent with the medium-term consolidation roadmap.

A structural shift could emerge with the forthcoming recommendations of the 16th Finance Commission. Economists anticipate a possible move away from narrow fiscal deficit targets towards a stronger emphasis on overall debt sustainability. With India’s debt estimated at around 84% of GDP, pressure is building to move closer to the 80% level over the medium term.

Bond market faces higher borrowing, RBI support crucial

Government borrowing requirements are set to rise. The Centre and states are expected to raise around ₹30.00 trillion through bonds and state development loans, an increase of about 8.50% from ₹27.70 trillion earlier.

Most economists expect the Reserve Bank of India to remain an active presence in the bond market through open market operations, helping absorb supply and limit upward pressure on yields. Even so, the 10-year government bond yield is widely expected to face gradual upward pressure as borrowing expands.

External sector steady, capital flows remain swing factor

India’s external position is projected to remain broadly stable. The current account deficit is expected at around 1.06% of GDP, supported by strong services exports, particularly from global capability centres, and steady remittance inflows.

The capital account poses greater uncertainty. Foreign portfolio investors withdrew $15.00 billion in one year and an estimated $17.00 billion in the next, resulting in balance of payments pressure. For 2026, economists expect modest net inflows of $7.00–8.00 billion, though forecasts vary widely, ranging from barely positive flows to inflows as high as $20.00 billion.

Rupee outlook, key risks to watch

The rupee, which weakened sharply due to sustained capital outflows, is expected to stabilise. Economists project the currency near ₹90.40 per dollar by the end of 2025, with a gradual depreciation to around ₹92.00 per dollar by the end of 2026.

Two major uncertainties could reshape this outlook. The prospect of an India–US trade agreement is seen as critical for sustaining growth momentum and investor confidence. At the same time, upcoming statistical revisions, with new GDP and CPI series based on a revised 2022–24 base, could lead to significant changes in headline economic indicators, complicating comparisons and policy assessment.