UBS: India's FY26 GDP Growth Forecast Remains Strong at 6-6.5% Fueled by Domestic Demand.

Jul 26, 2025
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India's economic growth is projected to remain strong in FY26, with UBS forecasting a real GDP growth of 6-6.5%. This optimistic outlook is underpinned by resilient domestic demand, which is expected to drive economic activity.

Factors Supporting Growth

Strong Domestic Demand: A key factor supporting the growth forecast is the strength of India's domestic demand. Household consumption is expected to become more broad-based, with rural demand recovering due to a favorable monsoon and softening food prices. Urban consumption will likely be supported by tax relief, easing inflation, and potential interest rate cuts.
Robust Investment: Strong investment is also expected to contribute to India's economic growth.
Lower Crude Oil Prices: Potential relief from softer global crude oil prices could further boost the economy.
** आरबीआईका सपोर्ट:** The Reserve Bank of India (RBI) is expected to play a key role in supporting growth, with potential rate cuts of 50-75 basis points to boost economic activity.
Strong Services Sector: India's strong services sector is expected to provide stability amid global uncertainties.
IMF Projection: The International Monetary Fund (IMF) projects India to remain the fastest-growing major economy over the next two years, with growth of 6.2% in 2025 and 6.3% in 2026.

UBS Forecast Revision

UBS Securities has revised its FY26 GDP growth forecast upwards to 6.4% from 6%. This revision considers factors such as better-than-expected domestic demand momentum, expectations of eased tariffs on Chinese imports, potential progress on a US-India trade deal, and support from lower global crude oil prices. UBS's higher GDP forecast assumes no significant increase in the effective tariff rate against India.

Potential Challenges and Risks

Global Trade Tensions: Rising global trade tensions and higher US tariffs could pose risks to India's growth trajectory.
Global Uncertainty: Heightened global uncertainty could impact private corporate investments.
China's Excess Capacity: The risk of China offloading excess capacity in the manufacturing sector could moderate fixed capital expenditure growth.
State Government Finances: Stretched balance sheets of state governments could lead to disappointing capital spending in FY26.
Monsoon and Commodity Prices: A less benign monsoon season or higher global commodity prices could drive up food prices and inflation.

Contrasting Forecasts

While UBS has a positive outlook, other organizations have presented more cautious forecasts. The OECD lowered India's FY26 growth forecast to 6.3%, citing risks from rising global trade tensions and higher US tariffs. The Asian Development Bank (ADB) also trimmed its FY26 GDP growth forecast for India to 6.5%, citing uncertainty in global trade and the effect of higher US tariffs. India Ratings and Research (Ind-Ra) has also lowered its FY26 GDP growth forecast for India to 6.3%, citing uncertainties around US tariffs and a weak investment climate.

Conclusion

Overall, India's economy is expected to maintain a steady growth rate in FY26, supported by strong domestic demand and a robust services sector. While there are potential risks from global trade tensions and other factors, the Indian economy is expected to remain resilient and continue on its growth path.

Written By

Aanya Sharma

With an observant eye, a genuine interest in people, and a passion for sports, Aanya is a budding journalist eager to capture her community's defining stories. She believes in the power of local narratives to foster connection and understanding. Aanya, also an avid sports enthusiast, is currently honing her interviewing skills, focusing on active listening and drawing out the human element in every story she pursues.