India’s economic outlook has improved, with external headwinds expected to ease as domestic activity strengthens. The Union Budget FY27 reaffirmed fiscal consolidation and a sustained capex push, with the deficit budgeted at 4.3% of GDP and the fiscal anchor shifting to a debt-to-GDP framework. It also advanced a broad reform agenda, with growth dividends likely to accrue over the medium term.
The India–US interim trade framework removed the 25% surcharge linked to Russian crude oil imports and envisaged reducing reciprocal tariffs from 25% to 18%. Following the US Supreme Court’s invalidation of IEEPA-based tariffs, the Trump administration imposed a uniform 15% tariff, below the 18% envisaged under the bilateral arrangement, potentially strengthening India’s negotiating leverage. Accordingly, we are cautiously optimistic on the FY27 external trade outlook.
Domestically, high-frequency indicators signal resilient momentum, with Q3 FY26 real GDP growth estimated at around 7.5% YoY, imparting an upside bias to our 7.4% FY26 forecast. The RBI kept the policy repo rate unchanged at 5.25% in February, signalling a “lower for longer” bias. We expect an extended pause, with rate action unlikely unless growth weakens materially or the macro environment deteriorates significantly.