Crisil today said India’s real gross domestic product (GDP) growth would be steady at 6.5% in fiscal 2026 despite uncertainties stemming from geopolitical turns and trade-related issues led by US tariff actions.

The forecast is based on two assumptions, Crisil said at its flagship India Outlook seminar today. These include another spell of normal monsoon and commodity prices continuing to remain soft. Cooling food inflation, the tax benefits announced in the Union Budget 2025-2026, and lower borrowing costs are expected to drive discretionary consumption.

Growth is now returning to pre-pandemic rates as fiscal impulse normalises and the high-base effect wears off. Even with that, the high frequency Purchasing Managers Index (PMI) data reveals that India maintains its pole position among major economies.

Says Amish Mehta, Managing Director and CEO, Crisil Ltd, “India’s resilience is being tested again. Over the past few years, we have built a few safe harbours against exogenous shocks — healthy economic growth, low current account deficit and external public debt, and adequate forex reserves — which provide ample policy latitude. So, while the waters can turn choppy, consumption-led rural and urban demand will be crucial to short-term growth. On the other hand, continuing investments and efficiency gains will aid in the medium term. We foresee both manufacturing and services supporting growth through fiscal 2031.”

Manufacturing growth is expected to average 9.0% per year over fiscals 2025-2031, up from 6% on average in the prepandemicdecade. The services sector is expected to grow slower, though it will remain the primary growth driver. As a result, the share of manufacturing in GDP will increase to ~20% from ~17% in fiscal 2025.

Inflation softened in fiscal 2025, led by lower non-food inflation, while food inflation rose. In fiscal 2026, we expect the recent softening in food inflation to continue and pull down the headline further.

Lower inflation and fiscal consolidation have opened the doors for policy rate cuts. We expect another 50-75 basis point rate reduction over the next fiscal, although slowing US Fed rate cuts and weather-related risks could influence the timing and quantum of these cuts.

India’s current account deficit (CAD) is expected to rise mildly in fiscal 2026. Given the tariff war initiated by the US, and the subdued global growth environment, India’s goods exports are expected to face further headwinds in fiscal 2026. However, a healthy services trade balance and robust remittances growth will limit the widening.

A new set of shocks emanating from current and potential US tariff actions is again testing India’s resilience.

Says Dharmakirti Joshi, Chief Economist, Crisil Ltd, “India has continued to raise its growth premium over advanced countries through infrastructure buildout, economic reforms including process improvement. Healthy GDP growth, a low current account deficit and adequate forex reserves provide buffer and policy flexibility, but do not insulate the country from external shocks. The risks to the growth forecast of 6.5% are therefore titled to the downside given elevated uncertainty due to the US-led tariff war”

Corporate India’s revenue growth is expected to improve to 7-8% on-year in fiscal 2026 vs ~6% in fiscal 2025, closing in on the decadal average of ~8% growth logged over fiscals 2016-2025. This will be led by healthy growth in consumption sectors and will be largely volume-led.

The leg-up to private consumption — accounts for more than 55% of the country’s GDP — from a reduction in taxes, as announced in the budget, can offer some support to capex by improving domestic demand and creating conditions for fresh investments.

For one, urban demand is expected to look up, especially in categories related to middle-income households. For instance, in automobiles, the expected volume growth for two-wheelers is much higher compared with passenger cars, where the target buyers are largely from the high-income category.

Another factor that determines the growth delta on account of tax cuts is the existing penetration levels of the product. In consumer durables, air conditioners will grow much faster than refrigerators and washing machines. Domestic penetration of ACs is significantly low at ~10% as against ~90% in developed economies such as the US. In contrast, refrigerators have a higher existing penetration level of 42% and threshold income levels observed for refrigerator purchase are much lower compared with ACs.

That said, commodity sectors, especially metals, will continue to drag down growth due to prevailing pricing pressure. Growth in the construction sector will remain tepid, too.

Despite expectations of moderate revenue growth, corporate India’s Ebitda margin is expected to improve 50 basis points (bps) in fiscal 2026, reaching near decadal highs, due to benign commodity prices. Consumption, commodities and export industries are expected to drive margin expansion in fiscal 2026.

All this will have a bearing on industrial capex, which is seeing tailwind from a host of factors, including the Production Linked Incentive (PLI) schemes.

Says Priti Arora, President and Business Head, Crisil Intelligence, “Between fiscals 2021 and 2025, industrial capex averaged Rs 4.3 lakh crore per annum. By fiscal 2030, it is expected to be ~Rs 7.1 lakh crore, marking an average annual increase of 1.6x, driven by higher capacity utilisation, strong corporate balance sheets and the PLI schemes. Emerging sectors, such as electric vehicles, semiconductors and electronics, will be the drivers here, accounting for more than 23% of the industrial capex between fiscals 2026 and 2030.”

Over fiscals 2026-2030, the PLI scheme and emerging sectors are set to account for a quarter of the country’s capex from 12% in fiscals 2021-2025, underscoring their importance in India’s industrial landscape.

The corporate sector has been through a period of deleveraging, which, combined with lower key commodity prices, has contributed to better financial health in terms of a lower net debt-to-Ebitda ratio. Improved financial health is expected to provide a cushion to corporates for the next round of the capex cycle. With reduced debt levels, companies will have more flexibility to allocate resources for strategic initiatives such as expansion, innovation and new growth opportunities.

A robust manufacturing sector is not only an economic driver but also a strategic lever to boost exports and foreign exchange earnings and fortify India’s position in the global value chain.

In India, there is sharp government focus today on expanding capabilities in new-age sectors, achieving higher localisation and driving backward integration in key value chains. Reforms, including the Make in India initiative, the phased manufacturing programme and PLI are showing green shoots across sectors.

However, the global environment presents many headwinds. The uncertainty about trade and tariffs will make it relatively more difficult to acquire technology, scale up and drive exports.

That said, India is building a strong domestic manufacturing ecosystem by focusing on four interconnected pillars: infrastructure for a solid foundation, technology for modernisation, skill development for a capable workforce, and market access to drive demand and growth. These underpinnings synergistically create a fertile environment for success in manufacturing.