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Informist, Wednesday, Dec. 17, 2025

 

MUMBAI – CareEdge Ratings projected India's GDP growth at 7.5% in 2025-26 (Apr-Mar) and 7.0% in FY27, driven by resilient domestic demand and stable macroeconomic fundamentals. The ratings agency expects inflation to remain benign, projecting average CPI inflation at 2.1% in FY26, before normalising to around 4% in FY27.

 

As per CareEdge Ratings, the domestic economy remains resilient. "Healthy agricultural activity, reduced income tax burden, Goods and Services Tax rationalisation, RBI (Reserve Bank of India) rate cuts, festive demand and front-loading of exports supported growth in H1 FY26 (Apr-Sept)," the rating agency said. "We expect GDP growth to moderate to around 7% in Oct-Mar as the impact of export front-loading fades and consumption demand normalises after the festive season. By Q4 FY26 (Jan-Mar), the low base effect is likely to wane, and the deflator is expected to rise from current low levels." It projected real GDP growth to be at 7.5% in FY26 and 7% in FY27. Meanwhile, nominal GDP growth wax projected at 8.3%, lower than the budgeted 10.1% for FY26.

 

CPI inflation remained low in the year so far, with 75% of the basket's items below 4%. Core inflation was elevated due to precious metals, but excluding them, it was 2.4% in November. Inflation bottomed out in October and is expected to rise to 3% in the March quarter of FY26, the rating agency said.

 

"India's macroeconomic outlook remains constructive heading into FY27," Rajani Sinha, chief economist, CareEdge Ratings, said. "Even with external uncertainties lingering, the Indian economy is expected to record healthy growth of 7% in FY27. The growth momentum will be supported by factors like comfortable inflation, lower interest rates and lower tax burden. Likely US-India trade deal would provide further impetus."

 

The rating agency projects current account deficit to be 1% of GDP in FY26 and FY27. The Centre is expected to meet its fiscal deficit target of 4.4% in FY26, with further consolidation likely to lower it to 4.2-4.3% in FY27. The 10-year G-sec yield is projected to be 6.4-6.6% by end-FY26, and dollar-rupee is expected to be around 89-90 by end-FY27, the rating agency said in a media webinar on 'Outlook for The Indian Economy in 2026'. 

 

India's capital expenditure cycle is reviving, with capital goods companies seeing strong order book growth. Foreign investors are taking note of India's growth opportunity, driving foreign direct investment inflows, especially in electric vehicle, renewables, electronics, data centres, and artificial intelligence infrastructure. Labour code reforms are expected to boost domestic and global investors' confidence, the rating agency said.

 

According to CareEdge Ratings, global economic conditions remain tough, with growth expected to stay below pre-pandemic levels. However, India's growth is likely to outperform other economies.

 

Cross-border trade and investment have slowed due to rising trade restrictions and geopolitical tensions. Global FDI net inflows as a percentage of GDP have declined since the global financial crisis, with subsequent shocks adding pressure, the rating agency noted. 

 

The Centre's gross tax collection has recorded weak growth of 4% on-year in Apr-Oct as against budgeted growth of 12.5% for FY26. However, non-tax revenues have risen sharply by 22%, aided by a higher RBI dividend of INR 2.7 trillion. Revenue expenditure has remained largely flat during Apr-Oct, even as capital expenditure continued to record healthy double-digit growth. Overall, revenue shortfall from slower growth in tax collections is expected to be offset by RBI's higher dividend transfer and lower revenue spending. 

 

CareEdge Ratings expects that the Centre will be able to bring down the debt to around 50 (+/-1)% by the end of FY31 from the estimated 56.1% in FY25. "We have based this on the assumption of nominal GDP growth averaging ~10.7% in the next five years," the rating agency said. "Laying a debt trajectory will give the government the flexibility to manoeuvre the fiscal deficit target for each year depending on the growth prospects. The government may go little slower on fiscal consolidation, with the fiscal deficit to GDP likely to be budgeted at 4.2-4.3% in FY27."

 

On export front, India's merchandise exports to the US declined across most categories after the 50% US reciprocal tariffs were imposed in August. Labour-intensive sectors like gems and jewellery, textiles, and garments saw a sharp contraction in Sept-Oct exports, the rating agency said. However, India's exports of gems and jewellery to the United Arab Emirates and Hong Kong rose, while share of textile exports to the UAE and China increased. This indicates a possible shift in export market dynamics, which remains a key area to watch, the agency said.

 

The rating agency expects India's goods exports to contract by nearly 1% in FY26, compared to 0.1% growth in FY25. Services exports are likely to grow 8.5% in FY26, down from 13.6% in FY25.

 

"While gross FDI inflows have improved over the past year, higher profit repatriation and increased FDI outflows from India have weighed on net FDI inflows," the rating agency said. "Outward FDI from India averaged $22 billion in FY24–FY25 marking a 58% increase from the $14 billion average recorded during FY21–FY23. Indian firms expanded their global footprint, particularly in Europe, South America and Africa, with investments spanning in sectors like telecom, automotive, energy, defence, pharmaceuticals, ports and steel."

 

India remains an attractive FDI destination, with a robust risk-adjusted return on inward FDI of 7.2%, second only to Indonesia among major countries analysed. This compares to 6.6% for Mexico, 4.5% for South Africa, and 4.3% for Philippines, according to CareEdge Ratings' assessment.  End

 

US$1 = INR 90.38

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

 

Reported by Vaishali Tyagi

Edited by Tanima Banerjee

 

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