Nations Outlook: India Eyes Steady Growth Amid Cooling Inflation and Global Headwinds

India’s economy is navigating a pivotal moment. As retail inflation cools to multiyear lows, the Reserve Bank of India (RBI) continues monetary easing, while global uncertainties and sluggish exports cast shadows over growth prospects. Against this backdrop, fresh projections and domestic trends offer both reassurance and caution.

Growth Forecasts Updated: IMF & UBS Raise Flags
The International Monetary Fund (IMF) has revised its outlook, raising India’s GDP growth forecast for both FY26 and FY27 to 6.4%—up from its earlier 6.2% estimate
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. Meanwhile, UBS expects India to maintain 6–6.5% real growth in FY26, citing resilience in domestic consumption and services exports despite rising tariff pressures
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Indian observers termed the scenario a “Goldilocks economy,” with inflation cooling faster than anticipated and growth steady—a combination that may create monetary policy flexibility
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📉 Inflation Eases, RBI Stays Neutral
India’s retail inflation has tapered to a six-year low of 2.1% in June, hovering near record lows projected for July
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. With core inflation remaining subdued, consumer spending and manufacturing have softened, prompting calls for further repo rate cuts in October or September
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In June, the RBI executed an unexpected 50 basis-point rate cut, and subsequently shifted to a neutral policy stance, balancing support for growth with vigilance on inflation risks
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Liquidity Surges, but Credit Growth Slows
The banking ecosystem is flush with cash—retail deposits have surged, reaching ₹3.79 lakh crore, while currency in circulation jumped to ₹91,000 crore. This reflects high liquidity and strong rural momentum in consumption and agriculture
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Despite the monetary easing, retail credit growth—including consumer loans and vehicle finance—has slowed due to rising defaults and tighter bank credit norms. Delinquencies have surged, particularly in credit cards and unsecured lending
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Auto Sales Weak, Consumers Cautious
The first quarter of FY26 saw modest consumer demand in the automobile segment. Hyundai India reported wholesales of 132,259 units, down 12% YoY, with SUVs making up 68% of its sales despite mixed demand for hatchbacks and sedans
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Car and two-wheeler sales have softened overall, further signaling cautious consumer sentiment, especially in urban markets.

💵 Household Demand and Tax Cuts Fuel Consumption
A wave of personal income tax reforms, including raising the tax-free slab to ₹12.75 lakh, has added significant purchasing power for middle-income households. Analysts estimate that ₹1 lakh crore in tax cuts may boost consumption by ₹5 lakh crore through multiplier effects
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This fiscal boost complements strong rural demand and continued government capital expenditure, expected to support growth in construction, infrastructure, and services
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Export Headwinds and Global Risks
India’s exports are under strain. In June, goods shipments slid to $35.14 billion, a 9% month-on-month drop, while trade tensions with the U.S. and global slowdown cast long-term risk shadows
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Potential retaliatory tariffs—some targeting automation, pharmaceuticals, and machinery—are expected to impact up to 87% of India’s exports to the U.S., jeopardizing trade momentum
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Economic Survey Signals Stability
According to the Economic Survey 2025, India’s real GDP growth for FY25 is estimated at 6.4%, with FY26 growth projected at 6.3–6.8%, driven by the services, industrial, and agricultural sectors
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. The survey highlights continued emphasis on infrastructural investment and reform-driven deregulation to maintain momentum.

The Bigger Picture: Balanced Growth Ahead
Despite challenges, India appears poised for a stable growth path—anchored by tight inflation, robust rural demand, tax-led consumption gains, and infrastructure-on-ground. Yet, external trade risks and fragile consumer credit conditions urge caution.

As the RBI evaluates further rate cuts and the government extends fiscal support, achieving a “Goldilocks” equilibrium neither too hot nor too slow—is emerging as India’s desired economic sweet spot.

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