Goldman Sachs Sees India’s GDP Growth Near 7% in 2026–27, RBI Rate Cuts and US Trade Deal to Support Economy

Goldman Sachs Research has projected that India's economic growth will remain resilient over the next two years, supported by strong domestic demand, policy support and easing external headwinds following a new trade deal with the United States.

Goldman Sachs Projection on India's Economy Amid New US Trade Deal

The global brokerage expects India's real GDP to grow by 6.9 per cent in 2026 and 6.8 per cent in 2027, both higher than consensus estimates. In 2025, India's economy is estimated to have grown 7.7 per cent year-on-year, despite facing headwinds from elevated US tariffs, which were among the highest imposed on countries in the Asia-Pacific region.

RBI Rate Cuts, Tax Relief and Liquidity Support Boost India's Growth Momentum

Goldman Sachs noted that a combination of RBI rate cuts, regulatory easing for banks and a weaker exchange rate helped ease financial conditions in 2025. The Reserve Bank of India cut policy rates by 125 basis points last year and injected substantial liquidity into the banking system, supporting credit growth.

Additionally, income tax and GST rate cuts helped revive urban consumption demand, while rural consumption remained resilient. These measures collectively helped offset external pressures and supported overall economic momentum.

Goldman Sachs Inflation Outlook: Limited Room for Further Rate Cuts

Headline inflation averaged 2.2 per cent in 2025, mainly due to lower food inflation. However, core inflation edged higher on rising precious metals prices, particularly gold.

For 2026, Goldman Sachs expects headline inflation to rise to 3.9 per cent, close to the RBI's medium-term target of 4 per cent. Given the significant easing already undertaken by the central bank, the brokerage sees limited scope for further rate cuts. However, it noted that if uncertainty related to US tariffs persists and begins to weigh on growth, an additional 25 basis point cut cannot be ruled out.

A key positive for India's outlook is the new US-India trade deal announced in early February, under which reciprocal tariffs on Indian goods were reduced from 25 percent to 18 percent. This brings India's tariff levels in line with other Asian economies.

Goldman Sachs estimates the deal could provide an incremental growth boost of around 0.2 percentage points to annual GDP, given India's export exposure to US final demand. The agreement is also expected to reduce uncertainty, which had earlier been a drag on private investment sentiment.

Consumption Recovery to Strengthen in 2026

Consumption remains a key driver of India's growth story. Real private consumption grew 7.4 per cent year-on-year in 2025, supported by lower borrowing costs, tax relief and low inflation.

Looking ahead, Goldman Sachs expects real consumption growth to rise to 7.7 percent in 2026, up from 7 per cent in 2025. Rural demand is expected to stay strong on the back of healthy crop output and continued welfare spending by state governments. Urban consumption is also likely to benefit from stable EMIs and improving credit availability.

Recent liquidity measures, which injected Rs 6.3 trillion into the banking system, are expected to further support bank lending and household spending.

External Sector and Capital Flows

India's current account deficit widened sharply to 2.8 per cent of GDP in the December quarter of 2025 due to weaker exports and a surge in gold imports. However, for the full year, the deficit is expected to remain contained at 0.7 per cent of GDP, supported by strong remittances and a resilient services trade surplus.

Services exports grew around 11 per cent year-on-year, led by software and business services. Meanwhile, foreign portfolio investors pulled out nearly $19 billion from Indian equities in 2025 amid earnings concerns and trade uncertainty, partly offset by debt inflows of about $7.5 billion.

For 2026, Goldman Sachs expects the current account deficit to widen moderately as domestic demand improves, though lower oil prices and strong services exports should provide some cushion.

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