Goldilocks situation of high economic growth and low inflation expected to continue in FY27: India Ratings

India’s current Goldilocks situation of high economic growth and low inflation is also expected to continue in FY27, according to forecasts by India Ratings and Research. It forecasts GDP growth of 7.4% this fiscal year and 6.9% next fiscal year. The agency also estimated that average retail inflation will remain below the Reserve Bank of India’s 4% tolerance limit, at 2.1% this fiscal and 3.8% in FY27.

It pegged nominal GDP growth at 9% for FY26 and 9.7% for FY27.

“The agency believes that domestic reforms, including income tax reduction in the FY26 budget, rationalization of the Goods and Services Tax (GST) and three foreign trade agreements (Oman, UK and New Zealand), will help the economy weather global uncertainties caused mainly by US tariffs,” it said in its FY27 economic outlook released on Tuesday. GDP growth in H2FY27 is expected to be above 7% due to base effect.

The GDP growth assumption for FY27 is a base case scenario and includes the current 50% tariffs imposed by the US on Indian products. “If and when the US trade deal is signed, it will benefit the Indian economy,” said Devendra Kumar Pant, chief economist and head of public finance, India Ratings and Research.

Globally, unilateral U.S. tariff hikes have increased global economic uncertainty, leading to expectations of a slowdown in global growth in 2025, the agency said, adding that the impact is now expected to be lower than previously estimated. The weighted average tariff on goods imported by the United States increased to 18.55% at the end of December 2025, from 2.56% on January 1, 2025.

The forecast comes a day before the first preliminary estimates of GDP growth for FY26 were released on January 7 by the Ministry of Statistics and Program Implementation.

The agency also expects private final consumption expenditure (PFCE), which accounts for about 55.9% of GDP (Q2FY26) on the demand side, to increase by 7.6% year-on-year in FY27, compared to an estimate of 7.4% in FY26 and 7.2% in FY25. “More than half of the PFCE is for services. The main drivers leading to strong consumption demand are strong growth in services, low inflation leading to positive real wage rate (rural agricultural wages from Q2 FY25 and urban minimum wage from Q4 FY25), income tax reduction announced in the FY26 budget and GST rationalization,” it said.

The base year for GDP and Consumer Price Index (CPI) will be changed to 2022-23 and 2024, from 2011-12 and 2012 respectively, in the coming months, and the current economic outlook will be revised once the new base year data is released, it added.