Goldman Sachs has raised its CY26 real GDP growth forecast for India to 6.8% from 6.5%, citing lower oil prices following the US-Iran peace deal, easing supply constraints and stronger-than-expected economic activity. The brokerage also lowered its inflation and current account deficit forecasts, saying the improved macro backdrop should support the economy through the rest of the year.

The brokerage said India’s economy remained resilient during the Middle East conflict as fiscal and quasi-fiscal measures absorbed much of the rise in energy costs, limiting the pass-through to consumers. Consumption stayed resilient in March and April, while investment softened because of supply disruptions. Goldman Sachs added that easing supply constraints and lower crude prices should now support a recovery in investment activity.

“On balance, with the recent downward revision in the oil price forecast by our commodities team, we raise our real GDP growth forecast for CY26 by 0.3 percentage point to 6.8% year-on-year, lower our headline inflation forecast by 0.2 percentage point to 4.4% year-on-year and lower our current account deficit forecast by 0.2 percentage point to 1.1% of GDP,” Goldman Sachs said.

GDP outlook improves after stronger first quarter

Goldman Sachs said India’s real GDP grew 7.8% year-on-year in the first quarter of CY26, around 50 basis points above its earlier estimate. The brokerage attributed the stronger-than-expected performance to resilient investment activity and robust growth in the services sector.

Gross fixed capital formation rose 10.8% year-on-year during the quarter, the strongest pace in six quarters, supported by healthy automobile production and stronger imports of investment goods. Services gross value added expanded 9.9% year-on-year, led by trade, hotels and transport-related activity.

While Goldman Sachs expects consumption growth to moderate during the second and third quarters because of earlier fuel price increases, it does not expect additional pressure beyond the third quarter as lower crude prices reduce the need for further retail fuel price hikes.

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Inflation forecast lowered as oil prices ease

Goldman Sachs lowered its headline CPI inflation forecast for CY26 by 0.2 percentage point to 4.4% and its FY27 forecast by 0.3 percentage point to 4.9%.

The brokerage said lower oil prices have reduced the risk of further increases in petrol and diesel prices. It also expects softer petrochemical prices to limit the impact on core goods inflation compared with its earlier estimates. As a result, Goldman Sachs lowered its core goods inflation forecast for CY26 to 3.2% and its core inflation forecast to 4.2%.

Fiscal pressures ease as fertiliser costs decline

Goldman Sachs said the sharp correction in global urea prices should reduce pressure on the government’s fertiliser subsidy bill compared with earlier expectations.

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Recent import tenders have cleared well below the highs seen during the peak of the Middle East conflict. Together with lower oil prices, this should ease near-term fiscal pressures and improve the government’s budget position.

Current account outlook strengthens

The brokerage also lowered its CY26 current account deficit forecast to 1.1% of GDP from 1.3%.

Goldman Sachs revised its oil import forecast lower to $215 billion from $220 billion after reducing its oil price assumptions. At the same time, it raised its remittance forecast to $140 billion from $138 billion after inflows remained resilient despite geopolitical uncertainty.

The brokerage now expects India’s balance of payments surplus to improve to 0.7% of GDP in CY26 from its earlier estimate of 0.6%.

Weather remains the near-term risk

Despite the improved macro outlook, Goldman Sachs said weather-related risks remain a near-term concern.

The brokerage expects heatwaves and weather uncertainty to remain a headwind for rural consumption in the coming months. It also expects the impact of earlier fuel price increases to weigh on household spending during the second and third quarters before easing later in the year.

Conclusion

Goldman Sachs believes the US-Iran peace deal has materially improved India’s macroeconomic outlook by reducing oil price risks and easing supply constraints. The brokerage has raised its CY26 GDP growth forecast to 6.8%, lowered its inflation forecast to 4.4% and reduced its current account deficit estimate to 1.1% of GDP. While weather-related risks and the lagged impact of higher fuel prices could weigh on consumption in the near term, Goldman Sachs expects lower crude prices and improving investment activity to support growth over the rest of the year.

Disclaimer: The macroeconomic projections, inflation forecasts, and Gross Domestic Product (GDP) growth estimates from Goldman Sachs outlined in this report are for informational and educational purposes only. They do not constitute financial, economic, or investment advice, or a recommendation to engage in any market or asset class allocations. Sovereign growth metrics and macroeconomic indicators are inherently vulnerable to global geopolitical developments, commodity price shocks, domestic monetary policies, fiscal revisions, and climate-related risk factors. Readers are strongly advised to perform independent analysis and consult a certified economist, financial analyst, or qualified advisor before making financial or strategic capital commitments based on these assumptions.

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