India’s economic engine is expected to continue powering ahead in FY26, with Swiss financial services major UBS projecting a real GDP growth rate of 6.0% to 6.5%, driven primarily by robust domestic demand, ongoing infrastructure push, and a resilient services sector. Despite global headwinds, India’s economic fundamentals remain solid, making it one of the most attractive investment destinations among emerging markets.
The projection comes amid a cautiously optimistic macroeconomic environment, as global uncertainties surrounding inflation, monetary policy tightening, and geopolitical risks continue to loom large. However, India’s strong consumption base, government-led capital expenditure, and manufacturing resilience are seen as the key pillars supporting sustained growth in the coming fiscal year.
Key Highlights of UBS Forecast for FY26
UBS economists maintain that India’s growth outlook for FY26 remains optimistic due to several structural and cyclical factors. The following are the main takeaways:
- Real GDP growth projection: 6.0%–6.5%
- Strong domestic demand to act as primary growth engine
- Private consumption recovery supported by stable inflation and better rural demand
- Public capex and infrastructure investments to remain a key driver
- Manufacturing and services sector outlook stays positive
- Inflation likely to remain within RBI’s tolerance band
- Monetary policy to remain cautiously neutral amid global rate changes
Domestic Demand: The Driving Force
Domestic consumption, which constitutes nearly 60% of India’s GDP, is forecast to remain steady. UBS analysts pointed out that factors such as urban employment recovery, positive consumer sentiment, and revival in rural demand are likely to boost private consumption in FY26.
The gradual decline in food inflation, easing fuel prices, and better monsoon prospects are expected to support rural purchasing power, which had weakened in the past two fiscal years. Additionally, improving credit growth and stable interest rates are likely to further support consumption across income groups.
Sector-Wise Growth Contribution to GDP in FY26
| Sector | FY25 Growth (%) | FY26 Estimated Growth (%) | Key Drivers |
|---|---|---|---|
| Agriculture | 2.8 | 3.2 | Normal monsoon, better MSP support |
| Industry (Manufacturing + Infra) | 5.9 | 6.5 | PLI schemes, capex push, logistics boost |
| Services | 7.2 | 7.5 | IT, banking, retail, digital services |
| Private Consumption | 5.4 | 6.0 | Urban demand, rural recovery |
| Government Spending | 7.1 | 6.8 | Capex-led infrastructure investments |
| Exports | 4.0 | 3.5 | Sluggish global demand, strong INR |
Investment Outlook: Private Capex Revival on the Horizon
One of the key points in UBS’ analysis is the likely revival in private capital expenditure. While government spending has led the way over the last few years, corporate balance sheets are now stronger, and capacity utilization in sectors like cement, steel, and electronics has improved considerably.
UBS anticipates that sectors such as auto, renewable energy, electronics, defense, and chemicals will see heightened investment activity in FY26. Supportive government policies under the PLI (Production Linked Incentive) schemes and continued ease of doing business reforms will also foster a favorable investment climate.
External Trade: Exports to Face Headwinds
India’s merchandise exports are likely to stay muted in FY26 due to weak global demand, slower Chinese recovery, and geopolitical disruptions. However, services exports, especially in IT and consulting, are expected to remain robust.
While the current account deficit (CAD) is expected to be contained at 1.5%–2.0% of GDP, any significant rise in crude oil prices or supply chain disruptions could pose upside risks. The INR is expected to remain relatively stable, supported by a strong forex reserve position and FDI inflows.
Inflation & RBI’s Monetary Policy Stance
UBS expects CPI inflation to average around 4.8%–5.2% in FY26, staying within the Reserve Bank of India’s (RBI) tolerance range of 2%–6%. Moderating food inflation and a high base effect are expected to keep price pressures in check, although sporadic supply shocks may still create volatility.
Given this outlook, the RBI is likely to maintain a neutral-to-dovish stance, especially if the US Fed begins cutting rates. Any rate cuts by the RBI could happen in Q3 or Q4 of FY26, contingent on inflation dynamics and global rate movements.
Employment Trends and Urban Labour Market
The urban job market is set to see a steady improvement, especially in the services and gig economy segments. With the formalization of jobs continuing, sectors like e-commerce, logistics, fintech, and hospitality are expected to lead hiring.
Meanwhile, rural employment will benefit from enhanced agriculture support schemes, infrastructure investments under PM Gati Shakti, and MGNREGA allocations.
Fiscal Position and Government Spending
The government remains committed to fiscal consolidation, targeting a fiscal deficit of 5.1% of GDP in FY26. However, UBS anticipates that there will be continued prioritization of capital expenditure, especially in transportation, energy, and urban infrastructure.
The total public capex outlay could cross ₹11 lakh crore in FY26, further supporting demand and employment creation across the economy.
India’s GDP Growth Trajectory: FY22 to FY26 (UBS Estimates)
| Fiscal Year | Real GDP Growth (%) | Remarks |
|---|---|---|
| FY22 | 8.7 | Post-COVID rebound |
| FY23 | 7.2 | Resilient growth despite global slowdown |
| FY24 | 6.9 | Supported by capex and consumption |
| FY25 | 6.6 (estimated) | Moderated global demand, steady domestic base |
| FY26 | 6.0 – 6.5 (projected) | Domestic demand, capex-led growth |
India’s Comparative Growth Outlook Among Emerging Markets
| Country | FY26 Estimated Growth (%) | Growth Driver |
|---|---|---|
| India | 6.0 – 6.5 | Domestic demand, infra, services |
| China | 4.5 – 5.0 | State stimulus, real estate recovery |
| Indonesia | 5.2 | Commodity exports, domestic reforms |
| Brazil | 2.2 | Agriculture, monetary easing |
| South Africa | 1.5 | Power sector reforms, mining exports |
India continues to be the fastest-growing major economy, outperforming peers on back of structural economic advantages.
Risks to UBS Outlook
UBS has also highlighted key risks that could derail the projected growth trajectory:
- Geopolitical tensions leading to supply chain disruptions
- Volatility in crude oil prices impacting import bills and inflation
- Weak global demand hitting export sectors
- Weather shocks affecting agriculture and rural income
- Policy uncertainty post-general elections
However, UBS notes that India’s macro buffers — including strong forex reserves, manageable fiscal deficit, and diversified economy — make it better positioned to withstand external shocks.
Conclusion
India’s GDP growth outlook for FY26 remains robust at 6.0%–6.5%, supported by a strong domestic demand engine, public infrastructure spending, and resilient service exports. As global challenges persist, India’s focus on self-reliance, formalization, digitization, and policy continuity will be critical to sustaining momentum.
While risks remain, especially from the global macro environment, India’s internal growth levers — particularly in consumption, capex, and innovation — place it in a strong position to lead emerging markets in economic expansion.
Disclaimer:
This article is based on economic forecasts and market analysis by financial institutions and should not be construed as financial advice. Actual performance and GDP growth may vary due to policy changes, global economic dynamics, and unforeseen macroeconomic events.
