Even while India's development prospects have not yet been significantly harmed by the US's sharp tariff increases, the forecast takes relevance under global headwinds.
With GDP growth predicted at 7.5% in FY26 and 7% in FY27, CareEdge Ratings stated that India's economy is expected to remain relatively strong even as global growth slows and trade uncertainties persist. This indicates early indications of a revival in the domestic private capital expenditure cycle and sustained investor interest in new-age sectors.
Even while India's development prospects have not yet been significantly impacted by the US's substantial tariff hikes, the prognosis takes significance under global challenges, with goods trade exhibiting signs of resilience and forward momentum.
There was a $24.53 billion trade imbalance in November due to merchandise imports of $62.66 billion and exports of $38.13 billion. This was a significant improvement from the $41.68 billion deficit in October, which was caused by a severe slowdown in import demand despite stable exports.
The US continued to be India's top export destination from April to November 2025, despite Washington enacting a 50% tax at the end of August. Exports increased 11.4% year over year to $59.04 billion from $53.01 billion during the same period in 2024.
Additionally, US imports rose 9.3% to $44.81 billion from $41 billion, bringing the two nations' total bilateral commerce to $103.85 billion, a 10.5% increase from $94.01 billion in the previous year.
Indications of a capex recovery
According to CareEdge's analysis, the rapid growth in capital goods companies' order books and the rise in private investment announcements indicate that India's capital expenditure cycle is beginning to show indications of recovery. A sample of capital goods companies' order books increased 20.7% year over year in FY25, and this trend persisted into the first half of FY26.
The industries with the highest capital expenditures include oil and gas, power, telecom, autos, metals, and non-ferrous minerals. During FY26–FY28, investment in power generation is predicted to rise at a compound annual growth rate (CAGR) of 8%, with renewables and storage growing at a CAGR of 13%.
According to Rajani Sinha, chief economist at CareEdge, who presented the report, foreign investors are becoming more aware of India's potential for growth, as evidenced by the increase in gross foreign direct investment inflows, especially in the areas of electric vehicles, renewable energy, electronics, data centers, and artificial intelligence infrastructure.
In the medium run, Sinha continued, major market changes, such as the adoption of new labor laws, might boost investor confidence even more.
Domestic prospects
According to CareEdge, solid agricultural activity, a lower income tax burden, GST rationalization, RBI rate reduction, festive demand, and front-loading of exports all contributed to India's growth in the first half of FY26.
As the effects of export front-loading lessen and consumption returns to normal during the holiday season, growth is predicted to decline to about 7% in the second half of FY26. The report also stated that nominal GDP growth is predicted at 8.3% in FY26, below the budgeted 10.1%, while real GDP growth is projected at 7.5% in FY26 and 7% in FY27.
Approximately 75% of the products in the consumer price index (CPI) basket show inflation below 4%, indicating that inflation has been modest thus far. Excluding them, core inflation was 2.4% in November, despite increasing precious metal prices keeping it high. As the low base effect diminishes, CPI inflation is expected to average 2.1% in FY26 before increasing to roughly 4% in FY27.
In terms of state finances, CareEdge reported that the Center's gross tax collections increased by just 4% year over year in the first seven months of FY26, significantly less than planned levels. However, this was countered by a 22% increase in non-tax income, which was made possible by a higher RBI dividend of ₹2.7 trillion.
The agency projects that the Center will reach its fiscal deficit target of 4.4% of GDP in FY26, with a further reduction to 4.2-4.3% in FY27, given that revenue expenditure is essentially unchanged and capital spending is still growing by double digits.
"Manageable external position"
With a forecast current account deficit of about 1% of GDP in FY26 and FY27, India's external position is anticipated to stay manageable thanks to remittance inflows and services exports.
However, merchandise exports are predicted to fall by roughly 1% in FY26 as a result of the US imposing high reciprocal tariffs starting at the end of August, which have affected labor-intensive industries like textiles, ready-made clothing, jewelry, and gems. With growing market shares in places like the UAE, Hong Kong, and China, CareEdge saw early indications of export diversification.
Net inflows have been hampered by increased profit repatriation and growing outside investments by Indian businesses, notwithstanding a rise in gross FDI inflows. As Indian companies increased their global presence in industries like telecom, automotive, energy, defense, pharmaceuticals, ports, and steel, outward FDI averaged $22 billion in FY24–FY25, a 58% increase over the FY21–FY23 average.
India's risk-adjusted return on inward foreign direct investment (FDI) was estimated by CareEdge to be 7.2%, second only to Indonesia among major emerging economies, notwithstanding these changes.
After drastically widening in October, India's trade deficit dropped to $24.53 billion in November as imports significantly decreased from the previous month, providing comfort on the external balance front.
Worldwide perspective
Global economic conditions are still difficult, according to CareEdge, with growth predicted to continue below pre-pandemic standards due to decreasing commerce, weakening globalization, and muted foreign direct investment.
According to the agency, global value chains started to mature about 2012, and rising trade restrictions and geopolitical tensions caused cross-border investment and commerce to slow down. Since the global financial crisis, net foreign direct investment (FDI) inflows as a percentage of GDP have decreased, and successive shocks have increased pressure, according to the report.
Additionally, CareEdge noted a slow change in the world's financial and monetary environment. While the US and the UK lowered rates in spite of inflationary pressures, policy rates were raised in nations like Brazil and Japan to combat inflation while monetary easing has started in other parts of the world.
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