India’s real gross domestic product (GDP) growth is expected to be steady at 6.5 per cent in fiscal 2026, stated a report by CRISIL, despite uncertainties stemming from geopolitical turns and trade-related issues led by tariff actions by the US. Crisil forecasted the growth on two assumptions: another spell of normal monsoon and commodity prices continuing to remain soft; cooling food inflation, the tax benefits announced in the Union Budget 2025-2026, and lower borrowing costs are expected to drive discretionary consumption.
With fiscal impulse normalising and the high-base effect wearing off, growth is now returning to pre-pandemic rates. Even with that, Crisil said, the high frequency Purchasing Managers Index (PMI) data reveals that India maintains its pole position among major economies.
India’s resilience being tested: How are key economic parameters performing?
Amish Mehta, Managing Director and CEO, Crisil Ltd, said, “India’s resilience is being tested again. Over the past few years, we have built a few safe harbours against exogenous shocks — healthy economic growth, low current account deficit and external public debt, and adequate forex reserves — which provide ample policy latitude. So, while the waters can turn choppy, consumption-led rural and urban demand will be crucial to short-term growth. On the other hand, continuing investments and efficiency gains will aid in the medium term. We foresee both manufacturing and services supporting growth through fiscal 2031.”
Meanwhile, manufacturing growth is expected to average 9.0 per cent per year over fiscals 2025-2031, up from 6 per cent on average in the pre-pandemic decade. The services sector is expected to grow slower, though, Crisil said, it will remain the primary growth driver. As a result, the share of manufacturing in GDP will increase to around 20 per cent from approximately 17 per cent in fiscal 2025.
Further, with inflation softening in FY25 led by lower non-food inflation even as food inflation rose, Crisil stated that the softening in food inflation is expected to continue and pull down the headline going forward.
The lower inflation and fiscal consolidation, the report maintained, have opened the doors for policy rate cuts. “We expect another 50-75 basis point rate reduction over the next fiscal, although slowing US Fed rate cuts and weather-related risks could influence the timing and quantum of these cuts,” Crisil maintained.
India’s current account deficit (CAD), meanwhile, is expected to rise mildly in FY26. Given the tariff war initiated by the US, and the subdued global growth environment, India’s goods exports are expected to face further headwinds in fiscal 2026. However, a healthy services trade balance and robust remittances growth will limit the widening,” it said.
A new set of shocks emanating from current and potential US tariff actions is again testing India’s resilience. Dharmakirti Joshi, Chief Economist, Crisil Ltd, said, “India has continued to raise its growth premium over advanced countries through infrastructure buildout, economic reforms including process improvement. Healthy GDP growth, a low current account deficit and adequate forex reserves provide buffer and policy flexibility, but do not insulate the country from external shocks. The risks to the growth forecast of 6.5 per cent are therefore titled to the downside given elevated uncertainty due to the US-led tariff war.”
Private consumption growth
In terms of revenue growth of corporate India, it is expected to improve to 7-8 per cent in FY26 vs around 6 per cent in FY25, closing in on the decadal average of around 8 per cent growth logged over fiscals 2016-2025. This, per Crisil, will be led by healthy growth in consumption sectors and will be largely volume-led.
The leg-up to private consumption — accounts for more than 55 per cent of the country’s GDP — from a reduction in taxes, as announced in the budget, can offer some support to capex by improving domestic demand and creating conditions for fresh investments.
For one, urban demand is expected to look up, especially in categories related to middle-income households. Another factor that determines the growth delta on account of tax cuts is the existing penetration levels of the product. That said, Crisil said, commodity sectors, especially metals, will continue to drag down growth due to prevailing pricing pressure. Growth in the construction sector will remain tepid, too.
Despite expectations of moderate revenue growth, Crisil maintained, corporate India’s Ebitda margin is expected to improve 50 basis points (bps) in fiscal 2026, reaching near decadal highs, due to benign commodity prices. Margin expansion in fiscal 2026 is expected to be driven by consumption, commodities and export industries. All this will have a bearing on industrial capex, which is seeing tailwind from a host of factors, including the Production Linked Incentive (PLI) schemes.
Priti Arora, President and Business Head, Crisil Intelligence, said, “Between fiscals 2021 and 2025, industrial capex averaged Rs 4.3 lakh crore per annum. By fiscal 2030, it is expected to be ~Rs 7.1 lakh crore, marking an average annual increase of 1.6x, driven by higher capacity utilisation, strong corporate balance sheets and the PLI schemes. Emerging sectors, such as electric vehicles, semiconductors and electronics, will be the drivers here, accounting for more than 23 per cent of the industrial capex between fiscals 2026 and 2030.”
The corporate sector has been through a period of deleveraging, which, combined with lower key commodity prices, has contributed to better financial health in terms of a lower net debt-to-Ebitda ratio, Crisil said, while maintaining that improved financial health is expected to provide a cushion to corporates for the next round of the capex cycle. “With reduced debt levels, companies will have more flexibility to allocate resources for strategic initiatives such as expansion, innovation and new growth opportunities,” it said
A robust manufacturing sector is not only an economic driver but also a strategic lever to boost exports and foreign exchange earnings and fortify India’s position in the global value chain.
“In India, there is a sharp government focus today on expanding capabilities in new-age sectors, achieving higher localisation and driving backward integration in key value chains. Reforms, including the Make in India initiative, the phased manufacturing programme and PLI are showing green shoots across sectors,” Crisil stated. However, it added, the global environment presents many headwinds.