Key Points

The global consultancy firm said the growth outlook for India will be shaped by a balancing act between domestic tax stimulus and uncertain global trade conditions.

It said "Deloitte forecasts growth to be 6.6 per cent as tax stimulus partly offsets the impact of trade uncertainties India's economic outlook for FY2026 hinges on a delicate balance between evolving trade relations and government efforts to boost domestic consumer demand.

It noted that the Indian economy showed resilience despite a slowdown in growth to 6.1 per cent year-on-year till Q3 of FY2025.

This moderation was mainly due to uncertainty around the general elections, unusual rainfall in the first half of the year, and volatility in global trade.

However, revised data shows that FY2023-24 recorded a strong 9.2 per cent growth, backed by robust domestic demand.

Indicators such as goods and services tax (GST) collections, automobile sales, and sales of fast-moving consumer goods (FMCG) have picked up in recent months, suggesting strong underlying momentum in the economy.

According to Deloitte, India's economic performance in FY26 will be driven by two opposing forces.

On one hand, tax incentives introduced in the Union Budget 2025 are expected to boost consumer spending.

The government has announced income tax cuts that will lead to a revenue loss of Rs 1 trillion annually. This move is intended to increase disposable income for middle-class households and drive consumption.

On the other hand, global trade uncertainties pose a risk to growth. India faces a 10 per cent ad valorem base tariff on its exports to the US, which adds to the 2023 trade-weighted average Most Favored Nation (MFN) tariff rate of 2.2 per cent, making the effective rate 12.2 per cent.

An additional reciprocal tariff of up to 16 per cent--currently paused for three months--could further increase this burden to 28.2 per cent by the end of FY26.

Deloitte said much will depend on the outcome of US-India trade negotiations in the coming months.

It said "Depending on how effectively India navigates the upcoming bilateral agreement, total reciprocal tariffs could range from a high of 26 per cent to a more moderate 10 per cent, or land somewhere in between"

Deloitte remains cautiously optimistic, noting that while trade headwinds may impact export performance, domestic demand--fuelled by tax cuts--could keep India's growth trajectory strong in FY26.

- ANI