OECD sees India maintaining growth momentum in FY26; GST to help push growth

OECD maintains India's growth outlook

India’s economy is expected to grow 6.7 percent in FY26, the Organisation for Economic Co-operation and Development (OECD) said on December 2, keeping its forecast unchanged.

In its latest Economic Outlook, the OECD noted that India remains one of the fastest-growing major economies, supported by strong investment activity and resilient services.

“Real GDP is projected to grow by 6.7% in fiscal year 2025-26, 6.2% in 2026-27 and 6.4% in 2027-28. Higher tariffs applied by the United States are expected to weigh on exports, but private consumption will be supported by rising real incomes as inflation remains low and consumption taxes decline,” OECD said.

The Paris-based institution said investment will be sustained by declining borrowing costs and strong public capital expenditure.

On the inflation front, OECD noted that retail inflation may eventually converge towards the 4% target.

India’s inflation declined to a low of 0.3 percent in October.

“Bilateral negotiations with the United States could lead to lower tariffs and boost exports and investment, while higher oil import prices could create inflation pressures,” OECD noted.

India’s growth surprised with a 8.2 percent print for Q2FY26, leading to economists raising their forecast to over 7 percent for FY26.

For FY27, the OECD expects India to grow 6.2 percent, rising to 6.4 percent the following fiscal.

“Weaker export growth due to the US tariffs is expected to dent GDP growth in FY2025-26 by about 0.4 percentage points in fiscal year 2025-26 and by about 0.3 percentage points in fiscal year 2026-27, while the launch of the GST reform in September 2025 could boost growth by 0.1 percentage point,” OECD noted.

With the RBI policy on the anvil, OECD noted that the central bank has more room for easing.

RBI's committee will meet from December 3-5 to decide on rate decision.

“With inflation below the central bank’s 4 percent inflation target, the central bank has room to extend the easing cycle. If inflation remains within the target range and inflation expectations remain well anchored, the policy rate could gradually decline toward 5 percent by fiscal year 2026–27,” OECD noted.