Goldman Sachs sees India's GDP growth at 6.9% in 2026, says US trade deal to add 20 bps

Goldman Sachs sees India's GDP growth at 6.9% in 2026, says US trade deal to add 20 bps

• Goldman Sachs forecasts India's GDP growth at 6.9% in 2026, 6.8% in 2027
• US-India trade deal boosts annual growth by 0.2%, reduces uncertainty
• Headline inflation expected to rise to 3.9% in 2026, near RBI's 4% target

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Goldman Sachs expects India’s economy to grow 6.9% in 2026 with the newly announced US trade deal adding an estimated 20 basis points to annual growth and helping unlock a delayed private investment cycle.

The global brokerage forecasts real GDP growth of 6.8% in 2027 as well, arguing that easing financial conditions, healthier balance sheets and reduced trade-related uncertainty could gradually set the stage for a private capex revival in the second half of next year.

India’s growth remained resilient in 2025 despite facing the steepest US tariffs in Asia Pacific. Goldman estimates GDP expanded 7.7% year-on-year last year. However, nominal GDP growth slipped to a six-year low (excluding the pandemic) amid record-low inflation.

Trade deal impact: small boost, bigger signal

The US-India trade agreement announced in early February reduced “reciprocal” tariffs on Indian goods from 25% to 18%, bringing them broadly in line with other Asian economies in the 15 to 19% range.

Based on India’s goods exports exposure of roughly 4% of GDP to US final demand, Goldman estimates the tariff reset could provide an incremental growth boost of 0.2 percentage points on an annualised basis.

More importantly, the deal removes a key overhang. Goldman’s economists had earlier estimated that US trade policy uncertainty was shaving off around 0.3 percentage points from real GDP growth. While the bank is not yet building a capex surge into its baseline forecasts, it sees scope for upside if private investment intentions translate into actual project execution in the latter half of 2026.

Inflation to rise; limited room for RBI easing

Headline inflation averaged just 2.2% in 2025, driven by lower food prices, though core inflation firmed due to higher precious metals prices, particularly gold.

For 2026, Goldman expects headline inflation to rise to 3.9% year-on-year — close to the Reserve Bank of India’s 4% target.

After cutting rates by 125 basis points last year and injecting liquidity through a range of measures, the RBI has limited room for further easing, according to Santanu Sengupta, Goldman Sachs Research’s chief India economist.

“We see limited scope for further policy rate easing by the RBI,” Sengupta wrote, adding that a further 25 basis point cut is possible only if tariff-related uncertainty persists beyond the first quarter and materially weighs on growth.

Consumption recovery gathers pace

Monetary easing, public capital expenditure and tax relief supported a recovery in private consumption in 2025. Real private consumption grew 7.4% year-on-year on a four-quarter rolling average basis.

Rural demand was buoyed by healthy crop output, while urban consumption benefited from rate cuts, income tax and GST relief, and low inflation.

Goldman expects real consumption growth to rise by about 70 basis points to 7.7% in 2026, supported by a strong winter harvest, continued state welfare spending — particularly in election-bound states — and improved credit growth. Recent liquidity measures that injected 6.3 trillion rupees into the banking system are expected to further support lending momentum.

External balances and capital flows

India’s current account deficit widened sharply to 2.8% of GDP in the fourth quarter of 2025, up from 1.3% in the previous quarter, as exports to the US softened and gold imports surged.

For the full year, however, the deficit is estimated at a contained 0.7% of GDP, aided by strong remittance inflows and a resilient services trade surplus. Services exports grew around 11% year-on-year, driven by software and business services.

Looking ahead, Goldman expects the current account deficit to widen to $37 billion in 2026, mainly due to higher non-oil and non-gold imports as domestic demand strengthens. This is likely to be partly offset by lower oil prices and continued strength in services exports.

Foreign portfolio flows remained volatile in 2025, with Indian equities witnessing roughly $19 billion in outflows amid earnings slowdown and trade deal uncertainty, while debt inflows totalled about USD 7.5 billion.

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