India's economy to hold top spot for growth, but underlying weaknesses remain: Reuters poll

A Reuters poll forecasts India's economy to grow at a mostly steady pace, projecting 6.4% GDP expansion in FY2025 and a modest acceleration to 6.7% in FY2026, despite the Reserve Bank of India's 100 basis point rate cuts and a recent shift to a 'neutral' policy stance. While government capital expenditure remains a key growth driver, concerns persist regarding lagging private sector spending and insufficient job creation, which challenge sustainable per capita income growth. Furthermore, the GDP outlook faces potential downgrades if a US-India trade agreement is not secured before the July 9 tariff deadline.

Analysis

India's economic growth is projected to be stable yet subdued, with a Reuters poll of 51 economists forecasting 6.4% GDP expansion for the current fiscal year ending March 2026, a slight deceleration from the 6.5% four-year low reported for the prior year. The outlook points to a modest recovery to 6.7% in FY 2026-27. This growth is heavily dependent on government capital expenditure, as private sector spending and investment continue to lag, raising concerns about the sustainability of the expansion once fiscal stimulus wanes. A critical structural issue remains the economy's inability to create sufficient quality jobs, which is constraining per capita income growth. On the monetary policy front, despite 100 basis points in rate cuts by the Reserve Bank of India this year, the central bank's recent shift to a 'neutral' stance has created uncertainty, with economists divided on whether a prolonged pause or a further 25-basis-point cut is likely. The primary near-term risk is external, hinging on US-India trade negotiations; a failure to secure a deal before the July 9 tariff deadline could trigger downgrades to the GDP outlook.

Key Decisions for Investors

• Investors should closely monitor the outcome of US-India trade negotiations, as the July 9 deadline represents a significant catalyst that could either de-risk the growth outlook or introduce material downside via tariffs.
• Given the reliance on government spending, portfolio allocation should be scrutinized to favor sectors benefiting from public capital expenditure over those dependent on broad-based private consumption, which remains weak.
• Pay close attention to upcoming inflation data and Reserve Bank of India communications for clarity on future monetary policy, as the current division among economists signals significant uncertainty for rate-sensitive assets.