India's Economy to Lead Global Growth in 2025–26, but Structural Issues Persist
India's Economy to Lead Global Growth in 2025–26, but Structural Issues Persist
India is set to retain its position as the world's fastest-growing major economy, despite recording its slowest growth in four years during FY 2024–25, a Reuters poll of 51 economists revealed.
The country’s GDP is projected to grow at 6.4% in the fiscal year ending March 2026, slightly below the 6.5% growth rate recorded in FY 2024–25. Analysts expect a modest rise to 6.7% in FY 2026–27, reflecting cautious optimism amid global uncertainty and internal economic constraints.
The stable forecast comes even after the Reserve Bank of India (RBI) implemented a 100 basis points interest rate cut since early 2025, including a surprise 50 bps cut on June 6. However, the bulk of India’s growth is driven by government-led capital expenditure, which economists warn may plateau soon.
“Most of the growth is being driven by government capex, but that could flatten,” said Indranil Pan, Chief Economist at Yes Bank.
Despite this growth momentum, private sector investment remains subdued, and job creation continues to lag, making it difficult for India to achieve inclusive, long-term development. Experts point to low per capita income and underemployment as major hurdles in translating GDP growth into real prosperity for the population.
Trade uncertainty also looms large. With the July 9 deadline approaching for reciprocal tariffs announced by U.S. President Donald Trump, the failure to secure a U.S.-India trade deal could weigh on future forecasts. Talks have stalled over key sectors like steel, farm goods, and auto parts, according to Indian officials.
While some, like ANZ economist Dhiraj Nim, remain hopeful of a breakthrough in trade negotiations, he noted,
“Even if a deal is reached, growth will remain below potential due to the global headwinds, necessitating policy support.”
The RBI’s shift from an accommodative to a neutral stance in June signals that its current easing cycle might be over — possibly the shallowest in over a decade.