India is expected to expand near its historical trend in FY26 with the help of strengthening consumption demand, favorable fiscal policies, and benign external conditions, says the latest global outlook report published by Standard Chartered Bank on Tuesday.
The report forecasts India's GDP growth to be at 6.6% in FY26, marginally higher than 6.5% of FY25, led by factors like recent monetary policy relaxation, income tax reductions, favorable monsoon rainfall, and the likelihood of lower global oil prices for an extended duration.
Even with this upbeat projection, the report warns that India is still at risk from global trade trends, especially tariff risks and the results of on-going trade talks with major trading partners such as the United States and the European Union. These outside factors would have a big effect on the growth path of the country, it added.
The total worldwide growth rate in 2025 has been reduced to 3.1% from the previous estimate of 3.2%, in the face of ongoing uncertainty regarding trade policies.
Anubhuti Sahay, Standard Chartered's Head of India Economic Research, pointed out real purchasing power in India is expected to strengthen in FY26. She observed urban demand will remain robust because of counter-cyclical fiscal steps, although certain urban households would rather utilize the benefits of reduced interest rates and tax concessions to pay off debt and save more.
Sahay also stressed that fiscal prudence will be paramount in ensuring growth is maintained and favourable investor sentiment is attracted. "A combined fiscal deficit well below 7 per cent of GDP is a key requirement for a rating upgrade, as underscored by S&P when it changed India's sovereign rating outlook to positive in 2024," she added. India is likely to record its first fiscal year achieving this milestone in FY26, with a strong chance of sustaining it in the medium term, she further added.
The report also puts the US and China, the world's two largest economies, under watchful eye, each confronting different growth challenges.
Within the United States, the report anticipates downside risks to increase during the latter half of 2025, after a surprisingly robust initial half. Tariffs' inflationary impact should constrain the Federal Reserve's ability to make aggressive interest rate cuts, although the bank sees one more 25 basis point reduction in 2025 and chances of a larger 50 bps cut in September, depending on the state of the economy.
At the same time, China's trend growth is expected to decelerate, with underlying risks emerging from increased effective tariffs even as some stabilization of the US-China trade war. Although China's leadership in the production of rare earths has boosted its negotiating leverage, growth in exports — a mainstay of the economy after COVID — may decline considerably by the end of 2025, the report cautioned.
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