The Indian economy entered a “Goldilocks” phase in H1 FY26, marked by sharp disinflation alongside accelerating economic growth. Growth momentum is expected to moderate in H2 FY26 due to base and deflator effects, a pullback in government spending, and subdued external demand. Even so, resilient private consumption and a recovery in private investment should sustain economic growth at a healthy ~6.8% in H2 FY26. High-frequency indicators point to improving consumption and private investment activity in Q3 FY26, despite a sharp moderation in central government capex and weak goods exports. Externally, while uncertainty around US–India trade talks persists, the conclusion of the India–EU FTA should lead to a positive medium-term boost to trade and investment. The central government is likely to meet the FY26 fiscal deficit target of 4.4% of GDP through expenditure rationalisation. In the FY27 Union Budget, we expect a renewed reform push to support investment, jobs, and exports, alongside continued fiscal consolidation. Benign inflation should allow the RBI to keep the policy repo rate unchanged in February while deploying additional liquidity measures to ease funding conditions.