The paradox of 2025 is that India’s strongest macroeconomic performance in decades has collided with a global system that no longer rewards macroeconomic success with currency stability, capital inflows, or strategic insulation, said the survey.
India is now the fourth largest economy, behind the US, China and Germany. The government said last month that India had overtaken Japan to get to number four.
Fastest growing major economy
India’s economy is projected to expand at a better-than-expected 7.4% in FY26, compared with a 6.5% rise in FY25, powered by rising investment and a manufacturing surge, as per the government data released earlier this year.
The projection is higher than the Reserve Bank of India’s latest expectation of 7.3%, beating last year’s 6.5% growth.
On a calendar year basis, the Indian economy is projected to grow 6.3% in 2026 and 6.5% in 2027.
India’s economic momentum picked up pace in the second quarter of FY26, with GDP growth accelerating to a six-quarter high of 8.2%, beating expectations and improving on the 7.8% expansion recorded in the April–June quarter.It had recorded growth of 6.5% and 9.2%, respectively in the last two fiscals.
The world’s fourth-biggest economy gained pace as the year progressed — despite steep 50% US tariffs — as the government launched a series of reforms and pared GST to support demand. The first advance estimates show the economy will cross the $4- trillion mark in FY26. Nominal growth is seen at 8%, well below 10.1% estimated in last year’s budget.
Low inflation has allowed the central bank to cut rates by 1.25% in 2025, which helped revive credit and power demand.
The World Bank and the International Monetary Fund have forecast that India will remain the world’s fastest-growing major economy, but their projections are lower — 6.5% and 6.6%, respectively.
The economy expanded 8% in the first half of the current financial year. Based on the first advance estimates, growth in the second half is estimated at 6.9%.
India-US trade deal in limbo
India remains one of the few major economies without a trade agreement with the US, with uncertainty weighing on the outlook. US President Donald Trump imposed tariffs of 50% on Indian exports — the highest rate in Asia — in August in part over India’s purchases of Russian oil following Moscow’s invasion of Ukraine. The tariffs have pummeled India’s labor-intensive export sectors, including textiles, gems and jewellery and leather.
“India was expected to be one of the early winners in the new tariff regime of the United States. Growth forecasts were revised downward. But in reality, growth accelerated due to a slew of structural reforms and policy measures,” the Finance Ministry’s survey said today.
The US accounts for around 18% of India’s exports.
Goldman Sachs Group expects growth to slow to 6.8% in the next financial year, even after assuming a US-India trade deal by March.
However, the UN noted that strong demand from other major markets, including Europe and West Asia, will partially cushion the impact, a trend underscored by the finalisation of the India-EU trade deal amid a reordering of the global economic landscape.
The EU agreement is the centrepiece of a broader Indian trade offensive. Over the past year, India has finalised trade pacts with the United Kingdom, New Zealand and Oman, demonstrating an urgency to embed itself in global value chains as protectionist pressures mount elsewhere. These agreements reflect a clear strategy to diversify export destinations, reduce overreliance on any single market and insulate the Indian economy from external shocks, particularly those emanating from the United States.
A steep target
Prime Minister Modi wants to make India a developed country by 2047, a goal that experts say requires growth closer to 8%. Most economists and multilateral institutions, as per Bloomberg, think the required target will be difficult to achieve consistently in the coming years.
In the decade until the pandemic struck in 2020, India’s average growth rate was 7%, which the country’s central bank sees as the economy’s potential rate.