India's Economy Hits Sweet Spot with 6.9% GDP Growth Forecast for FY27

The report stated, "We think the Indian economy is in a sweet spot with strong growth in domestic demand and contained macro stability risks. Building in lower US trade tariffs, reforms and cyclical policy support, we expect India's FY27 real GDP growth at 6.9% YoY, well above consensus expectation of 6.6%."

The report noted that high-frequency indicators for January underscore this trend, with retail two-wheeler sales growing 21 per cent and passenger car sales increasing 9 per cent year-on-year. Tractor sales also showed significant strength, rising 35 per cent in December.

While gross GST collections grew by 6.2 per cent in January, the manufacturing PMI rose to 55.4 during the same month. Industrial activity, including electricity generation and rail freight traffic, also saw sequential increases. Bank credit growth accelerated to 14.6 per cent as of the end of January, while the services PMI improved to 58.5.

External challenges, specifically higher US tariffs that took effect in August 2025, were largely mitigated by resilient domestic demand and adjustments in direct and indirect taxes. The report noted that "external headwinds from higher US tariffs were largely offset by resilient domestic demand, adjustment in direct and indirect taxes, front-loading of government capital expenditure and supportive monetary policy." Additionally, the completion of trade deals with the US and EU is expected to provide a lift to the goods export outlook in the coming months.

A new GDP series with a 2022-23 base year is scheduled for release by the end of February 2026, which aims to provide a more accurate gauge of overall growth momentum. This updated series is expected to integrate real-time data from sources like GST and UPI to better cover the digital and informal economies.

Regarding monetary policy, the report suggests the Reserve Bank of India may maintain an extended pause, focusing on durable liquidity. On the currency front, UBS expects the USD/INR to reach 94 by the end of 2026, noting that "RBI's large short-end FX forward maturities should provide a floor for USD/INR, making a rebound beyond 88-89 unlikely. We continue to expect a 2026 year-end USD/INR of 94."

- ANI