India is increasingly recognized as a standout performer among emerging markets, poised to capitalize on the current global reflationary phase. A recent report indicates that India is projected to contribute over 15% of global incremental GDP growth between 2025 and 2030, surpassing the combined contributions of economic powerhouses like Japan and Germany. This anticipated growth underscores India's increasing importance in the global economic landscape.
Several factors contribute to India's optimistic outlook. The country's expanding middle class, favorable demographics, and increasing role in global supply chains are positioning it as a key player in the realignment of global economic trends. Furthermore, sound policy-making is expected to leverage India's demographic strengths, digital leadership, and industrial diversification into lasting development.
The Indian economy has demonstrated resilience, expanding by 8.2% year-over-year in the second quarter of fiscal year 2025-2026. This robust growth has reinforced expectations of an upward revision in full-year growth projections. Despite global headwinds such as higher US tariffs and volatile capital outflows, India posted impressive growth in the first half of the fiscal year, driven by strong private consumption and investment, aided by easing inflation and favorable rural conditions.
The government's commitment to high public capital expenditure, particularly in infrastructure and green-transition projects, has further bolstered domestic demand. Prudent expense management has allowed the government to pursue growth-supporting measures while targeting a fiscal deficit of 4.4% of GDP this fiscal year, a significant reduction from pandemic highs.
Recent policy measures, including income tax cuts, goods and services tax (GST) rationalization, and lower interest rates, are expected to provide additional momentum to near-term growth. The United Nations upgraded India's economic growth projection for 2026 to 6.6%, and forecasts 6.7% for 2027, attributing the revision to resilient private consumption and strong public investment.
The Reserve Bank of India (RBI) has also played a crucial role by implementing a mix of measures to revive economic momentum, including rate cuts, reducing the cash reserve ratio, and infusing liquidity. These efforts, combined with deregulation and front-loaded capital expenditure, are expected to drive a sharp turnaround in earnings growth.
While India's economy is projected to grow at a healthy pace, global economic growth is expected to remain subdued in 2026 amid elevated uncertainty, persistent trade tensions, and tight fiscal conditions. However, India is expected to outperform most major economies, with resilient domestic demand and strategic investment powering its growth.
Despite positive indicators, foreign institutional investor (FII) outflows in 2025 have left India underweight in many portfolios, creating scope for selective inflows if emerging market sentiment improves. India's stock market valuations have turned favorable relative to bonds and short-term rates, potentially setting the stage for a re-rating in equities. Morgan Stanley predicts a Sensex target of 95,000 by December 2026, driven by cheaper valuations, improving earnings, and supportive government policies.
