CareEdge Ratings projects India's economy to grow at 7% in FY 2026-27, backed by low inflation and interest rates. While domestic fundamentals are strong, the agency warns of a weakening rupee and declining foreign investment as key challenges.
India's Resilient Growth Trajectory
Even with external uncertainties lingering, the Indian economy is expected to record healthy growth of seven per cent in the upcoming financial year 2026-27, CareEdge Ratings has asserted. The growth momentum, according to the rating agency, will be supported by factors such as low inflation, lower interest rates, and a lower tax burden.
"While India's merchandise exports have come under pressure amid tariff uncertainties, the healthy services exports are expected to remain supportive of the external position," it said.
The Indian economy has demonstrated relative resilience in the current financial year 2025-26, with the GDP growth pegged at 7.4 per cent, as per the First Advance Estimate (FAE) by the government. The growth momentum has been supported by income tax cuts, GST rate rationalisation, continued momentum in services exports, easing inflationary pressures and RBI rate cuts, the rating agency added.
"Overall, the domestic fundamentals remain largely resilient despite a turbulent global economic landscape," the CareEdge Ratings report read.
For 2026-27, CareEdge projected real GDP growth at 7 per cent, with nominal GDP growth estimated at 10.1 per cent. India's macroeconomic outlook remains constructive heading into 2026-27. For 2025-26, the RBI has projected GDP growth at 7.3 per cent.
Sachin Gupta, Chief Rating Officer and Executive Director, CareEdge, said, "As India steps into 2026, the macroeconomic picture appears, at first glance, remarkably encouraging."
Gupta said inflation is largely under control, interest rates remain reasonable, and the banking sector is in its strongest shape in over a decade, supported by low non-performing assets and robust corporate credit quality.
"Add to this a steadily declining fiscal deficit, a stabilising public debt profile, political continuity, and an increasing emphasis on structural reforms, and the narrative seems overwhelmingly positive," Gupta asserted.
Warning Signs Amidst Optimism
Yet beneath this optimistic surface lie emerging challenges that warrant closer attention.
Weakening Rupee
One concerning trend is the weakening of the Indian rupee, not only against the US dollar but also more sharply against other major currencies. Over the past year, the rupee has depreciated by over 15 per cent against the British pound and the euro.
Declining Foreign Investment
Foreign investment trends also paint a sobering picture, it added. According to CareEdge, foreign portfolio investors recorded net outflows of nearly USD 18 billion in 2025, while net FDI has fallen sharply over the past four years, from USD 44 billion in 2021-22 to barely USD 0.5 billion in 2024-25.
These declines, however, signal more than a cyclical shift in sentiment, CareEdge added.
India's ambition to become a "Viksit Bharat" hinges not only on strong domestic fundamentals but also on its ability to attract long-term investment and compete effectively in global markets.
"While the growth story remains intact for now, the warning signs--weak capital inflows, currency pressures, and rising trade barriers--suggest that sustaining this momentum will require a careful recalibration of economic strategy."
Recommendations for Union Budget
This year's Union Budget will be presented in the backdrop of healthy domestic growth and low inflation, even though on the external front, there continues to be a threat amidst Rajani Sinha, Chief Economist, CareEdge, suggested that the government must focus on R&D and innovation, job creation, and concerted support to the agriculture sector.
As has been the convention, the Union Budget for 2026-27 will be presented in the Parliament on February 1, 2026. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)