India’s economy is expected to stay on relatively strong footing even as global growth slows and trade uncertainties persist, with GDP growth projected at 7.5% in FY26 and 7% in FY27, CareEdge Ratings said, pointing to early signs of a revival in the domestic private capital expenditure cycle and sustained investor interest in new-age sectors.
The outlook assumes significance amid global headwinds, even as steep tariff hikes by the US have not materially dented India’s growth prospects so far, with goods trade showing signs of resilience and forward momentum.
Merchandise imports stood at $62.66 billion in November, while exports came in at $38.13 billion, resulting in a trade deficit of $24.53 billion. This marked a substantial improvement from October’s deficit of $41.68 billion, reflecting a sharp moderation in import demand even as exports remained steady.
Despite Washington imposing a 50% tariff from the end of August, the US remained India’s largest export destination during April-November 2025, with exports rising 11.4% year-on-year to $59.04 billion, from $53.01 billion in the same period of 2024.
Imports from the US also increased 9.3% to $44.81 billion, up from $41 billion, taking total bilateral trade between the two countries to $103.85 billion, a 10.5% increase from $94.01 billion a year earlier.
Signs of capex recovery
In its report CareEdge said that India’s capex cycle was showing initial signs of a recovery, as reflected in the sharp expansion in order books of capital goods companies and the increase in private-investment announcements. Order books of a sample of capital goods firms grew 20.7% year-on-year in FY25, with momentum continuing into the first half of FY26.
Sectors such as oil and gas, power, telecom, automobiles, metals and non-ferrous minerals are leading capital spending, while investment in power generation is expected to grow at a compound annual rate of 8% during FY26–FY28, with renewables and storage expanding at a 13% CAGR, it estimated.
Presenting the report, Rajani Sinha, chief economist at CareEdge, said foreign investors were increasingly taking note of India’s growth opportunity, as reflected in the rise in gross foreign direct investment inflows, particularly in electric vehicles, renewable energy, electronics, data centres and artificial intelligence infrastructure.
Sinha added that factor market reforms, including the implementation of new labour codes, could further strengthen investor confidence over the medium term.
Domestic outlook
CareEdge said India's growth in the first half of FY26 was supported by healthy agricultural activity, a reduced income tax burden, GST rationalisation, RBI rate cuts, festive demand, and front-loading of exports.
Growth is expected to moderate to around 7% in the second half of FY26 as the impact of export front-loading fades and consumption normalises after the festive season, it said. Real GDP growth is projected at 7.5% in FY26 and 7% in FY27, while nominal GDP growth is estimated at 8.3% in FY26, below the budgeted 10.1%, the report added.
Inflation has remained mild so far, with about 75% of items in the consumer price index (CPI) basket recording inflation below 4%. While higher precious metal prices kept core inflation elevated, excluding these, core inflation stood at 2.4% in November. CPI inflation is projected to average 2.1% in FY26 before rising to about 4% in FY27 as the low base effect fades.
On public finances, CareEdge said the Centre’s gross tax collections grew only 4% year-on-year in the first seven months of FY26, well below budgeted levels, but this was offset by a 22% rise in non-tax revenues, aided by a larger RBI dividend of ₹2.7 trillion.
With revenue expenditure largely flat and capital expenditure continuing to post double-digit growth, the agency expects the Centre to meet its fiscal deficit target of 4.4% of GDP in FY26, with a further narrowing to 4.2-4.3% in FY27.
'External position manageable'
India’s external position is expected to remain manageable, with the current account deficit projected at around 1% of GDP in FY26 and FY27, supported by services exports and remittance inflows.
Merchandise exports, however, are expected to contract by about 1% in FY26, following the imposition of steep US reciprocal tariffs from end-August, which have hit labour-intensive sectors such as gems and jewellery, textiles and ready-made garments. CareEdge noted early signs of export diversification, with rising market shares in destinations such as the UAE, Hong Kong and China.
While gross FDI inflows have increased, net inflows have been weighed down by higher profit repatriation and rising outward investments by Indian companies. Outward FDI averaged $22 billion in FY24–FY25, a 58% increase over the FY21–FY23 average, as Indian firms expanded their global footprint across sectors such as telecom, automotive, energy, defence, pharmaceuticals, ports and steel.
Despite these shifts, CareEdge said India remained among the most attractive destinations globally on a risk-adjusted basis, estimating the country's risk-adjusted return on inward FDI at 7.2%, second only to Indonesia among major emerging economies.
India’s trade deficit narrowed sharply in November to $24.53 billion as imports declined significantly from the previous month, offering relief on the external balance front after a sharp widening in October.
Global outlook
CareEdge said economic conditions remained challenging worldwide, with growth expected to stay below pre-pandemic averages amid slowing trade, weakening globalisation and subdued foreign direct investment.
The agency noted that global value chains began maturing around 2012, with cross-border trade and investment losing momentum due to rising trade restrictions and geopolitical tensions. Net global FDI inflows as a share of GDP have declined since the global financial crisis, with subsequent shocks adding further pressure, it said.
CareEdge also flagged a gradual shift in the global monetary and financial landscape. While monetary easing has begun in parts of the world, policy rates have been raised in countries such as Japan and Brazil to counter inflation, even as the US and the UK cut rates despite inflationary pressures.
A gradual move away from the US dollar is also underway, it said, with greater use of local currencies in bilateral trade and a sharp rise in central bank gold purchases as a hedge against uncertainty. The dollar index has weakened by about 9% so far in 2025, it said.