India's economy is likely to grow by 6.5% in FY26, but tariff tensions could hit the outlook

India’s economy is expected to expand 6.5% in FY26, powered by a steady domestic momentum, according to a Bank of Baroda report. However, the money shooter warned that escalating concerns about ongoing tariff negotiations could pose a disadvantage risk to the positive prospects. This projection is in line with the Reserve Bank of India (RBI) of 6.5%, which was announced during the latest Monetary Policy Committee (MPC) meeting result on August 6, 2025. The economic performance of the first quarter of India has begun with a strong performance as India’s GDP has accelerated to 7.8% in the first quarter of the annual year. Bank of Baroda added that the upcoming spending on festive season and a recovery in urban consumption is likely to support growth, according to an ANI report. The expectation of another RBI rate cut and potential fiscal support can also positively affect the economic track, the report added. According to the official data, the nominal GDP of India grew with a rate of 8.8 percent during the April-June quarter. This growth was led by the following macroeconomic factors: supply growth: Growth in the environment was driven by the manufacturing, construction and services sector. Strong demand side: On this front, strong expansion in private final consumption expenses at 7% and the gross fixed capital formation supported with 7.8% performance. The PFCE share in GDP has risen to 60.3%, the highest level in 15 years for the first quarter. Investment momentum: Central government’s capital expenditure has had a significant increase of 30.1% over the past three years. Private investment sentiment has also improved, with new investment announcements rising 3.3 times on the year-on-year basis. Experts rejoice India’s Q1-GDP growth economists and experts have considered India’s first-quarter GDP growth figures, which they call a strong sign of economic resilience. “The GDP numbers in India once again surprised over the upside, with the growth significantly stronger than expected. At 7.8%, India remains the fastest growing big economy in the world,” says Sujan Hajra, chief economist and executive director, Anand Rathi Wealth Limited. He further added that “on supply side, manufacturing and construction expands at almost 8%, while the services are rising more than 9%-and for the flood induced by the flood, the result would have been even stronger.” “The recently imposed 50% US rates would be an important risk to GDP growth in India, as labor-intensive sectors such as textiles and jewelry are most affected. At the same time, urban consumption and employment trends and uncertain environment can continue to weigh on the private sector,” Ambit Capital said. Disclaimer: The views and recommendations expressed are those of individual analysts or brokerage firms, not coin.