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Informist, Tuesday, Nov. 25, 2025

 

MUMBAI – Deutsche Bank expects India's GDP growth to slow to 6.4% in 2026 from 7.3% in 2025 due to a reversal in the GDP deflator that pushed up real growth rates while dragging down nominal growth this year, it said in a report Tuesday. This is because India's CPI inflation is likely to average 3.9% in 2026, near the Reserve Bank of India's medium-term target of 4%, from 2.2% this year due to the impact of an adverse base and consumption demand. 

 

Nominal GDP growth may rise from a cyclical low of 9.0% in 2025 to 10.0% and 10.5% in the next two calendar years, respectively, the bank's Chief Economist for India, Malaysia and South Asia Kaushik Das wrote. Though growth has held up better than expected in 2025, the real GDP growth trend of over 7% does not reflect strong momentum, and even in 2027 real GDP growth will only recover to 6.7%.

 

The underlying momentum will improve over the next few years because of the impact of monetary and fiscal stimulus announced in 2025 and after the US cuts tariffs on imports from India to sub-20% from the current 50%, Deutsche Bank said in its World Outlook 2026. Private consumption and government investment will continue to drive the economy as the growth in private investment lags due to the persisting global uncertainty. 

 

"...India is expected to slow by nearly a percentage point due to a rise in the deflator from low 2025 levels, even if nominal GDP will accelerate — raising the likelihood that India overtakes Japan as the fourth-largest economy in the world in 2026, with third place firmly in its sights for 2028," the report said. 

 

The government has cut both direct and indirect taxes this year, while the RBI's Monetary Policy Committee has cut its policy repo rate by 100 basis points between February and June. Deutsche expects another 25-basis-point rate cut to 5.25% in the upcoming December policy meeting in its base case, before the MPC holds rates through 2026 and raises them starting in the June quarter of 2027 to a terminal rate of 6.25%.

 

If consumption doesn't pick up, tariff disputes with the US persist or there is a geopolitical flare-up with its neighbours among other downsides, the bank sees India's GDP growth missing its forecasts by 50 bps. This may prompt the RBI's MPC to cut the repo rate by another 25 bps in 2026, the report said. 

 

On the fiscal front, the central government's fiscal deficit is likely to average around 4.5% in 2026-27 (Apr-Mar) and FY28 from the government's aim of 4.4% in FY26. Meanwhile, the rupee could see some appreciation to 88 a dollar if an India-US trade deal comes through in the near term, but end at 90 a dollar by 2026-end and 92 a dollar by 2027-end. On Friday, the Indian unit had hit a record low of 89.4950 against the greenback.

 

"We expect the BOP (balance of payments) position to improve in 2026 and 2027, as foreign capital flows revive (both equity and debt, with the latter possibly benefitting from potential global bond index inclusion), but even in this scenario, we see limited scope for rupee appreciation, as the RBI will need to augment its FX reserves by buying USD," the report said.  End

 

US$1 = INR 89.22

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aaryan Khanna

With inputs from Janwee Prajapati 

Edited by Vandana Hingorani

 

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