The resilience of the Indian economy is being put to the test again. Crisil's forecast for India's real GDP growth remains stable at 6.5% in fiscal 2026. This projection comes despite the uncertainty due to geopolitical tensions and US tariff actions.
The forecast assumes normal rainfall during the monsoon season and commodity prices that would be slightly lower than usual. Growth has come in line with its pre-COVID rates as fiscal stimulus retracts. High frequency data show India is still on top amongst all other major economies in the world.
The manufacturing sector is forecasted to have a compound annual growth rate of 9.0% over the five years stretching from fiscal 2025 through fiscal 2031. It is more than three percentage points higher than the pre-pandemic decade average of 6%. Thus, while something lower in this outlook, the services sector continues to be the key growth engine. Manufacturing sector's share in GDP will increase from approximately 17% presently to about 20% by fiscal 2031.
Inflation softened in fiscal 2025 led by lower non-food inflation. Rate cuts are expected to be in the range of 50-75 basis points in the next fiscal. In fiscal 2026, a slight increase in the current account deficit is expected. Given the pressure from US tariffs, goods exports from India will face headwinds. However, a strong services trade and remittances-side will support the current account deficit from widening.
The PLI scheme acts as a key engine of growth for manufacturing. It provides financial incentives to companies based on their actual output. The government approved an amount of 2.7 billion dollars for the electronics manufacturing sector. It is expected to generate nearly 92,000 direct jobs.
In addition, 3.5 billion dollars were allocated to the automotive sector, which attracted more than 8.15 billion dollars in investments. These results surpass the initial targets. The PLI scheme will provide for 25% of industrial capex between 2026-2030, However, the regulatory and administrative challenges are grave concerns that require addressing for continuous and stable growth
Make in India essentially aims to transform India into a global manufacturing hub. It emphasizes skill development, innovation, and infrastructure. The program has led to record FDI inflows, indicative of increasing global confidence in India's manufacturing capabilities.
The initiatives in biotechnology and food processing has helped in establishing new advanced manufacturing plants which has strengthened the domestic manufacturing. Yet it is imperative that the Make in India initiative looks into infrastructure bottlenecks and ease of doing business.
Tax reforms have brought simplicity in the tax structure in India. The Goods and Services Tax has worked in unison with the indirect tax system. Cuts in corporate taxes are aimed to attract private investments. The tax incentives introduced in the Budget for 2025-26 will drive discretionary consumption.
Urban demand is expected to rise, especially among middle-income households. Low penetration products like air conditioners are expected to grow faster than high penetration products. For example, AC penetration is barely ~10% compared to ~90% in the US. Cooling food inflation and lower costs of borrowing will be additional stimulants for consumption.
Major Economic Indicators | ||
|---|---|---|
| Indicator | FY25 | FY26 (Projected) |
| GDP Growth | 6.5% | 6.5% |
| Manufacturing Growth | 6.0% | 9.0% |
| Corporate Revenue Growth | ~6% | 7-8% |
| EBITDA Margin Improvement | Base | +50 basis points |
| Industrial Capex | Rs 4.3 lakh crore (avg) | Moving toward Rs 7.1 lakh crore by FY30 |
| PLI Investment (Electronics) | Base | $2.7 billion |
| PLI Investment (Automotive) | Base | $3.5 billion |
Investors should be targeting sectors that benefit from policy reforms. The manufacturing sectors more particularly benefit electronics, the automotive, and renewable energy. There are bright spots for the PLI scheme in areas like electric vehicles or semiconductors and electronics. This will be approximately 23% of industrial capex for the period of FY26-30.
Corporate India shows that it is in a much better position now. A lower debt-to-EBITDA ratio implies a conducive environment for companies as they brace themselves for the next investment cycle. On the flipside, investors should watch for potential risks stemming from US tariff actions, global trade tensions, and implementation challenges. In the long run, factors continue to remain positive with a much-steady growth outlook projected until fiscal 2031.
The GDP outlook of 6.5% for India comes with a crucial support base, being the government policy reforms. The combination of PLI scheme, Make in India, and tax reforms form an environment conducive to sustained growth. External constraints notwithstanding, economic fundamentals for India remain strong. The sectors under focus for enhancement will draw growth in the coming times. The journey toward being a manufacturing hub continues.
India has developed safeguards against exterior shocks. These include healthy GDP growth-low current account deficit-and a fair quantity of forex reserves. These buffers allow flexibility when policies become adverse. With supportive domestic drivers, the country will remain on its growth path through FY26 and sustain the same momentum thereafter.