India’s Economic Momentum Endures, Strong Growth Forecasts, Benign Inflation Anchor Policy in Early 2026

New Delhi, India | 7 February 2026

India entered 2026 with robust economic momentum, as confirmed by a series of key government and central bank reports released in January and early February. The data underscores a resilient economy powered by strong domestic demand, a thriving services sector, and historically low inflation, providing a stable foundation for continued growth.

Upwardly Revised Growth Estimates Signal Resilience
The government’s First Advance Estimates, published by the Ministry of Statistics and Programme Implementation on 7 January 2026, forecast a real GDP growth rate of 7.4% for the 2025-26 financial year (FY26), up from 6.5% in the previous year . This positive outlook was reinforced in the government’s annual Economic Survey, presented on 30 January, which highlighted India’s transition to a “high-growth and resilient economy” supported by broad-based demand .

The Reserve Bank of India (RBI), in its first monetary policy review of 2026 on 6 February, also expressed strong confidence. The central bank retained its GDP growth projection for FY26 at 7.4% and revised its early forecasts for the first half of the next financial year (2026-27) upwards to 6.9% and 7.0%, citing sustained momentum in consumption and investment .

Services and Manufacturing Lead Sectoral Expansion
The growth drivers are broad-based. The services sector, a dominant force in the economy, is estimated to have grown by 9.1% in FY26, with financial, real estate, and professional services surging at 9.9% . Manufacturing also showed strong momentum, with Gross Value Added (GVA) accelerating to 9.13% in the second quarter of FY26, signaling a structural recovery underpinned by government Production Linked Incentive (PLI) schemes .

Inflation at Historic Lows, RBI Holds Policy Steady
A major enabling factor for growth is a benign inflation environment. The average headline inflation for April-December 2025 was 1.7%, the lowest since the Consumer Price Index (CPI) series began . The RBI, in its February policy meeting, noted that CPI inflation hit its lowest level in the data series in October 2025 . With inflation projected to average just 2.1% for FY26 and remain close to the 4% target in the coming quarters, the RBI’s Monetary Policy Committee unanimously voted to keep the key repo rate unchanged at 5.25%, maintaining a “neutral” policy stance .

Labour Market Strengthens Amid Robust Demand
The strong economic activity is reflected in a resilient labour market. Key indicators strengthened in the second quarter of FY26, with the unemployment rate declining to 4.8% in December 2025 and the Labour Force Participation Rate rising . The organized manufacturing sector added over 10 lakh (1 million) jobs in FY24, according to the Annual Survey of Industries .

External Trade Presents a Mixed Picture
While domestic drivers remain strong, the external sector presents challenges. India’s merchandise trade deficit widened to a record $25.04 billion in December 2025, as imports grew 8.8% while exports saw softer growth of 1.8% . Analysts attribute export pressure partly to high U.S. tariffs on select Indian goods . However, this is partially offset by India’s robust services exports, which reached a record high and provide a critical buffer against global trade slowdowns .

Fiscal Credibility and Policy Reform Underpin Outlook
The government’s prudent fiscal management has enhanced economic credibility, resulting in three sovereign credit rating upgrades in 2025 . As highlighted in independent analysis, India is expected to navigate 2026 by leveraging the resilience of its domestic demand while implementing decisive fiscal and monetary policy reforms to sustain growth momentum .

References

1. The Times of India. “RBI MPC Meeting 2026 Highlights: Repo rate unchanged at 5.25%.” timesofindia.indiatimes.com, 6 Feb. 2026, https://timesofindia.indiatimes.com/business/india-business/rbi-mpc-meeting-february-2026-live-updates-rbi-governor-sanjay-malhotra-mpc-repo-rate-cut-monetary-policy-committee/liveblog/127965184.cms.
2. Government of India, Press Information Bureau. “Economic Survey 2025-26.” pib.gov.in, 30 Jan. 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2220800&reg=3&lang=1.
3. Government of India, Ministry of Statistics & Programme Implementation. “FIRST ADVANCE ESTIMATES OF GROSS DOMESTIC PRODUCT, 2025-26.” pib.gov.in, 7 Jan. 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2212087&reg=3&lang=1.
4. Trading Economics. “India Balance of Trade.” tradingeconomics.com, updated Feb. 2026, https://tradingeconomics.com/india/balance-of-trade.
5. The Economic Times. “RBI GDP Growth 2026: Central bank nudges forecast higher, upgrades early FY27 outlook.” economictimes.indiatimes.com, 6 Feb. 2026, https://m.economictimes.com/news/economy/indicators/rbi-india-gdp-growth-estimate-central-bank-expectations-mpc-key-updates-central-bank-projects-7-4-growth-fy26/articleshow/127968841.cms.
6. Deloitte. “India economic outlook, January 2026.” deloitte.com, 15 Jan. 2026, https://www.deloitte.com/us/en/insights/topics/economy/asia-pacific/india-economic-outlook.html.