Deloitte Forecasts 6.6% GDP Growth for India in FY26 Amid Tax Cuts and Trade Challenges

Deloitte India projects a 6.6 GDP growth for India in FY2026, driven by domestic consumption and government tax incentives, while acknowledging potential risks from global trade uncertainties.

Domestic Consumption Fuels Growth
The Union Budget 2025 introduced significant income tax cuts, aiming to boost middle-class spending. Deloitte estimates that these tax exemptions could contribute approximately 0.6% to 0.7% to the nation's GDP in FY2025-26, potentially generating economic activity worth between ₹6.7 trillion and ₹7.9 trillion in the medium term.

Economist Dr. Rumki Majumdar from Deloitte India noted that the tax exemptions will increase disposable income for the young population with higher income elasticity. The anticipated economic expansion and immediate impact on consumption are expected to drive overall private consumer expenditure growth.

Trade Uncertainties Pose Risks
Despite domestic optimism, global trade tensions present challenges. India faces an ad valorem base tariff rate of 10% on its goods exports to the United States, in addition to the 2023 trade-weighted average most favored nation (MFN) tariff rate of 2.2%. This could potentially elevate the effective trade-weighted average MFN tariff rate to 12.2%. A paused differential tariff rate of 16% could raise this to 28.2% by the end of FY2026.

Deloitte anticipates that unresolved trade tensions could shave 0.1% to 0.3% off GDP growth, depending on the swiftness and effectiveness of India's bilateral trade negotiations with the US.

Outlook Remains Cautiously Optimistic
Despite these headwinds, Deloitte remains cautiously optimistic. The firm highlights the resilience of India's domestic demand, bolstered by tax incentives and a favorable monetary policy environment. Lower inflation, stable global oil prices, and increased liquidity are expected to support consumer spending and investments. Moreover, a potential bilateral trade agreement with the US could mitigate trade-related risks and open new avenues for Indian exports, particularly in sectors like textiles and electronics.

India's projected GDP growth of 6.6% for FY2026 underscores the nation's ability to leverage domestic policy tools to counterbalance external uncertainties. The interplay between tax stimulus and trade negotiations will be pivotal in shaping the country's economic landscape in the coming fiscal year.

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