The Outlook for India’s Economy in 2026 amid A New US Trade Deal

Following a resilient year of economic growth in 2025, Goldman Sachs Research forecasts India’s real GDP to stay robust in the coming calendar years. Our economists expect 6.9% year-on-year growth in 2026 and 6.8% in 2027 (real inflation adjusted)—both above consensus estimates.

In 2025, our economists expect India’s GDP to have grown at 7.7% year-on-year, despite headwinds from US tariffs—which was the highest imposed on any country in the Asia Pacific region. That said, nominal GDP growth was at a six-year low (excluding the pandemic) due to record-low inflation.

A combination of policy rate cuts, regulatory relaxation for banks, and a weaker exchange rate eased financial conditions in India. Income tax and goods and services tax (GST rate) cuts supported a nascent recovery in urban consumption demand, while the recovery in rural consumption was sustained.

A trade deal with the US was announced in early February, in which “reciprocal” tariffs on Indian goods were reduced from 25% to 18%. This would bring India’s tariff rate in line with that of most other Asian countries, in the range of 15-19%. Our analysts expect an incremental growth boost of 0.2 percentage points of GDP (annualized) with these new tariffs, based on India’s goods exports exposure of roughly 4% of GDP to US final demand.

What is the outlook for Indian inflation in 2026?

Headline inflation was significantly lower in 2025, averaging 2.2% year-over-year on lower food inflation. However, core inflation increased on higher precious metals inflation (mainly gold).

In 2026, our analysts forecast headline inflation to rise to 3.9% year-on-year, close to the Reserve Bank of India’s (RBI’s) target of 4%. The RBI cut rates by 125 basis points last year, and undertook a comprehensive set of measures to inject liquidity into the system. Given that, "we see limited scope for further policy rate easing by the RBI,” Santanu Sengupta, Goldman Sachs Research’s chief India economist, writes in his team’s report.

If uncertainty related to US tariffs persists beyond the first quarter and weighs heavily on growth, Sengupta adds, an additional 25 basis point cut may be in the offing.

India’s consumption recovery

The easing of RBI policy as well as public capex and tax cuts helped support consumption demand in 2025. Real private consumption recovery showed 7.4% growth year-on-year (on a four-quarter rolling average basis) last year.

In rural India, consumption rose on the back of healthy summer crop production. For urban Indians, the RBI’s policy rate cuts resulted in a modest recovery in consumer credit growth, the government provided income tax and GST relief, and headline inflation stayed low—all aiding growth in consumption.

Our economists forecast sustained rural consumption in 2026, on a strong winter harvest and continued welfare spending by state governments, particularly those heading into elections. Recent liquidity measures that have injected 6.3 trillion rupees ($70 billion) into the banking system should further improve bank credit growth.

Overall, Goldman Sachs Research estimates that real consumption growth will rise by around 70 basis points to 7.7% year-on-year in 2026 from 7% in 2025.

How will the new US trade deal affect India?

As exports to the US dipped and gold imports surged, India's current account deficit widened significantly to around 2.8% of GDP in the fourth quarter of 2025, up from 1.3% the previous quarter. But the current account deficit for the full year of 2025 is likely to remain contained at 0.7% of GDP, owing to high remittances receipts and services trade surplus.

Services exports remained robust last year, growing at around 11% year-on-year on continued strong growth in software and business service exports. But capital inflows were muted. Indian equity markets saw around $19 billion in portfolio outflows from foreign investors amid an earnings slowdown and heightened uncertainty around the India-US trade deal, while debt inflows were around $7.5 billion. 

Our analysts expect the current account deficit to widen to $37 billion in 2026, mainly driven by higher non-oil and non-gold imports, even as consumption demand improves this year. This is partially offset by an expectation of lower oil prices and a sustained resilience in services exports.

The new US trade deal will impact domestic investment by mitigating uncertainty. Our economists had earlier estimated around 0.3 percentage points drag on real GDP growth due to US trade policy uncertainty. The deal will improve private investment intentions, our economists write, but “we expect a lag before this translates into actual capex execution and hence we are not incorporating this into our forecasts at the moment.”

“That said,” they add, “there could be further upside to real GDP growth from a recovery in private capex in the latter half of [2026].”

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