Goldman Sachs Research has projected India's real GDP to grow at an above-consensus 6.9% year-on-year in 2026 and 6.8% in 2027, cementing India's position as the world's fastest-growing major economy. The forecast, outlined in a detailed report titled 'India: Improved Macro Outlook After the US-Iran Deal,' highlights the newly-signed US-India trade deal as a key growth catalyst that removes significant trade policy uncertainty.

The investment bank estimates that the US-India trade agreement, announced in early February, will provide an incremental boost of 0.2 percentage points (20 basis points) to annual GDP growth, while also removing an estimated 0.3 percentage points drag that trade policy uncertainty had imposed on the economy.

Trade Deal Unlocks Growth Potential

Under the terms of the February agreement, reciprocal tariffs on Indian goods were reduced from 25% to 18%, bringing India's tariff levels broadly in line with other Asian economies in the 15-19% range. With India's goods exports exposure to US final demand standing at roughly 4% of GDP, the tariff reduction is expected to provide a modest but meaningful boost to trade flows.

The deal also resolves a prolonged period of economic uncertainty. Goldman Sachs had previously estimated that persistent trade policy uncertainty was shaving around 0.3 percentage points off the country's real GDP growth. The resolution of this uncertainty is likely to encourage capital expenditure and revive business confidence.

India's economy demonstrated remarkable resilience in 2025, growing at an estimated 7.7% despite facing the stiffest US tariffs imposed on any Asia-Pacific nation. Services exports held firm at around 11% year-on-year growth, driven by software and business services, even as goods exports faced headwinds.

Consumption Recovery Driving Domestic Demand

Goldman Sachs expects real consumption growth to accelerate to 7.7% year-on-year in 2026, up from 7% in 2025 — a 70 basis point improvement driven by lower inflation, improved rural demand, and easing financial conditions. India's demographic dividend, with a median age of 28 years, continues to underpin domestic consumption demand.

Inflation is projected to average 3.9% in 2026, up from 2.2% in 2025, reflecting higher food and energy prices. However, this remains within the Reserve Bank of India's comfort zone of 2-6%. The RBI has maintained a status quo on interest rates in its June 2026 policy review, citing the need to support growth amid global uncertainty.

The current account deficit is expected to widen to $37 billion in 2026, up from a contained 0.7% of GDP in 2025, mainly driven by higher non-oil and non-gold imports as consumption demand improves. However, robust services exports and strong remittance inflows — India remains the world's largest recipient of remittances — are expected to keep the external account manageable.

Foreign Investment and Capital Flows

Indian equity markets saw approximately $19 billion in portfolio outflows from foreign investors in 2025 amid an earnings slowdown and heightened uncertainty around the trade negotiations. However, debt inflows of around $7.5 billion provided some offset. The resolution of trade uncertainty is expected to reverse portfolio outflows as global investors regain confidence in India's growth story.

The India-US trade framework now provides a stable foundation for long-term investment planning. Infrastructure spending, particularly in data centres and digital infrastructure, is attracting record capital. Amazon, Microsoft, and Google have cumulatively committed $57 billion to India's AI infrastructure buildout.

The OECD has similarly projected India's GDP growth at 7.6% for 2025-26, 6.1% for 2026-27, and 6.4% for 2027-28, with India maintaining its position as the world's fastest-growing major economy. The World Bank has also endorsed the outlook, forecasting 6.6% growth for India even as it cut global growth projections.

Structural Reforms and Sectoral Outlook

The government's production-linked incentive (PLI) scheme has attracted over Rs 2 lakh crore in investment across electronics, pharmaceuticals, and automotive sectors. Electronics manufacturing has seen a sharp uptick, with exports surging 18% in May 2026. Engineering goods, electronics, and pharmaceuticals are emerging as key export growth drivers.

The financial services sector is undergoing a digital transformation, with Unified Payments Interface (UPI) transactions crossing 15 billion monthly. India's private credit market is projected to double by FY30, according to Moody's, supported by rising corporate financing needs and infrastructure investments.

Goldman Sachs expects better fiscal management, with the government targeting a fiscal deficit of 4.5% of GDP for FY27, down from 4.9% in FY26. Tax revenues have been buoyant, supported by GST collections consistently exceeding Rs 1.7 lakh crore per month.

Risks and Challenges

The report identifies several downside risks, including potential disruptions to oil transit through the Strait of Hormuz — India's Russian oil imports hit a record high amid earlier disruptions — and renewed global trade tensions. India's exposure to crude oil imports, which account for over 80% of domestic consumption, makes it vulnerable to energy price shocks.

Climate-related risks, including the intensifying El Niño conditions that have already triggered extreme weather events, pose additional challenges to agricultural output and rural incomes. However, sufficient buffer stocks and effective supply management measures are expected to mitigate potential food price spikes.

On the positive side, easing global commodity markets, lower crude oil prices following reduced West Asian tensions, and lower urea costs are keeping input costs manageable for Indian industry. The US-Iran dialogue progress has contributed significantly to the decline in energy prices.

FAQ

What is Goldman Sachs' GDP forecast for India in 2026?

Goldman Sachs forecasts India's real GDP to grow at 6.9% in 2026 and 6.8% in 2027, above consensus estimates.

How will the US-India trade deal affect India's economy?

The trade deal reduces tariffs on Indian goods from 25% to 18%, providing an estimated 20 basis points boost to annual GDP growth and removing trade policy uncertainty.

What is driving India's consumption growth?

Lower inflation, improved rural demand, easing financial conditions, and India's young demographic profile are driving consumption growth to an estimated 7.7% in 2026.

What are the main risks to India's growth outlook?

Key risks include oil price shocks from Strait of Hormuz disruptions, global trade tensions, and climate-related impacts on agriculture.

Sources

Sources: Goldman Sachs Research, Business Standard, IBEF, OECD Economic Outlook, World Bank Global Economic Prospects, Ministry of Finance India, Reserve Bank of India