Growth momentum enters a tougher global cycle
India enters fiscal 2026-2027 with strong economic fundamentals. Real GDP expanded by 7.7 percent in FY2025-26, outperforming initial expectations. Resilience in private consumption and strong investment activity supported growth, with the latter recording the strongest demand-side driver, growing 8.2 percent during the year and accelerating to 10.8 percent in the final quarter. On the production side, services remained the primary growth anchor, while manufacturing performed relatively strongly.
The question now is how this momentum will hold up in a more challenging global environment. Geopolitical tensions resulting in disruptions to key shipping routes have resulted in volatile commodity prices and weak investor sentiment. Consequently, India has seen a widening trade deficit, strong capital outflows and fast depreciation of the rupee against the dollar. While the tentative peace deal between the US and Iran and the RBI’s recent measures may contain some of these risks, the impact of El Nino on food and their prices could influence the economic outlook.
We expect easing geopolitical pressures and festive demand towards the end of 2026 to help revive economic growth for the current fiscal year. Deloitte India projects India’s real GDP growth to remain in the range of 6.5-6.8 percent in FY2026-27.
Leveraging Free Trade Agreements to improve external resilience
That said, our outlook for the next year is stronger, and one of the biggest reasons is India’s accelerated engagement through a new generation of Free Trade Agreements (FTAs) with key economies with large market potential. Given the success of partnering with the UAE and Mauritius, and securing a larger share of their import demand, India is now out to replicate this success.
With preferential market access now spanning 38 countries, India has an unprecedented opportunity to use this new trade architecture by:
- Expanding India’s export footprint strategically: Newer FTAs will help align India’s competitive strengths with markets where demand is high, but India’s current penetration remains limited. Agreements with the UK, the EU and the US will open opportunities in electronics, engineering goods, pharmaceuticals, chemicals, textiles and auto components—sectors where India has growing capabilities and partner demand is also high.
- Building more resilient value chains through strategic imports: The FTAs will also make it easier to diversify sourcing of key inputs and subcomponents needed for strategic sectors.
However, India will be required to reduce its import dependence through a complementary industrial policy and support ecosystem, alongside the implementation of trade policy. Over the long term, India’s competitiveness will depend on stronger domestic supplier ecosystems, higher value addition and technology-led improvements in manufacturing capability.