India's Economic Growth Forecasts Surge Ahead of Budget Announcement
Strong GDP Growth Figures Released
Approximately two weeks ago, the Indian government unveiled the GDP growth figures for the second quarter (Q2) of FY 2025-26, showcasing a robust increase of 8.2%. This marks a significant improvement from the 5.6% recorded in the same quarter last year and represents the highest growth rate in six quarters. The total growth for the first half (H1) stands at 8%, indicating the economy's resilience.
International Recognition Boosts Economic Outlook
Just ten days before the budget presentation, India received two significant endorsements from the international community. The International Monetary Fund (IMF) and a leading rating agency, Moody's, have both upgraded their forecasts for India's economic performance, enhancing its global economic image.
IMF Raises Growth Forecast
In its January 2026 World Economic Outlook update, the IMF revised India's GDP growth forecast for FY 2025-26 (April 2025 - March 2026) from an earlier estimate of 6.6% to 7.3%. This 0.7 percentage point increase is based on recent strong momentum, particularly anticipated strength in Q3 and Q4. The IMF has stated that India will continue to be the fastest-growing major economy in the world, although growth may moderate to 6.4% in the coming years.
Moody's Ratings Align with IMF
Similarly, Moody's Ratings has projected India's growth for FY26 (up to March 2026) at 7.3%, significantly higher than last year's 6.5%. According to Moody's, this robust growth will enhance average household income and stimulate demand in sectors like insurance, aided by digitization and other reforms.
India's Unique Economic Position
India stands out as the only major economy consistently maintaining a growth rate above 7%. The IMF's January 2026 update places India's GDP growth forecast for FY 2025-26 at 7.3%, the highest among major global economies.
Comparative Growth Rates
For comparison, here are the projected growth rates for other countries: China at 5% (2025-26), followed by 4.5% and 4%; the USA at approximately 2.1-2.4%; the global average at 3.3%; and other G20 nations, with India leading at 6.2% (2026 calendar year), while developed countries like Japan, Germany, and Italy are below 1%.
Drivers of India's Economic Growth
India's impressive growth is fueled by a significant surge in domestic consumption and demand. Improvements in rural income, tax reductions, GST rationalization, a robust services and manufacturing sector, government capital expenditure, and digitalization have all contributed to this momentum. The NSO's preliminary estimates indicate a growth of 7.4% for FY 2025-26, while the RBI has also projected 7.3%.
Inflation Remains Under Control
Remarkably, despite such high growth, inflation remains manageable. In December 2025, the CPI retail inflation was just 1.33%, slightly above November's 0.71%, significantly below the RBI's target of 4%. Food inflation was negative at -2.71%, keeping overall inflation below 2%.
RBI's Policy Rate Outlook
Currently, the RBI's policy rate (repo rate) stands at 5.25% following a 25 basis point cut in December 2025. This situation is described as a 'Goldilocks' scenario—high growth with low inflation—termed a 'rare Goldilocks period' by the RBI Governor. The low inflation opens up possibilities for further rate cuts, although agencies like Crisil anticipate a hold on rates in the February 2026 MPC meeting due to a slight uptick in inflation.