Whalesbook
### Trade Deal Delay Casts Shadow on Growth Momentum
India's economic outlook for fiscal year 2026-27, buoyed by strong macroeconomic fundamentals, faces a significant headwind from the potential delay of the India-US trade deal. Goldman Sachs Chief India Economist Santanu Sengupta indicated that a finalization beyond the first quarter of FY27 could compel the government to deploy policy reserves and potentially trigger further interest rate cuts by the Reserve Bank of India (RBI).
The economic consequences of such a delay are projected to affect key sectors. Specifically, textiles and the gems and jewellery industries are anticipated to face trade losses, according to Sengupta. While global brokerage Goldman Sachs forecasts India's GDP growth at 6.7% for 2026 and 6.8% for FY27, these figures carry a downside risk if trade uncertainties persist. Should tariff-related trade friction weigh heavily on growth beyond March quarter, Goldman Sachs anticipates room for an additional 25 basis points repo rate cut by the RBI in 2026. The current account deficit, projected around 1% of GDP, could see a downside risk of an additional 20 basis points or more due to this trade deal delay.
### Consumption Recovery Amidst Segmented Trends
Despite external risks, Goldman Sachs remains optimistic about India's mass consumption trend, observing a nascent recovery in both rural and lower-income urban segments. This recovery is being supported by favorable crop cycles leading to increased transfer payments to lower-income households and beneficial Goods and Services Tax (GST) adjustments. Calendar year 2025 saw robust real GDP growth of 7.6%, though nominal GDP growth was at a six-year low due to record-low inflation.
However, challenges persist for the middle consumer segment. Concerns are linked to job creation dynamics and the increasing impact of Artificial Intelligence, which could affect employment prospects. In contrast, the affluent segment, after rapid post-pandemic growth, is experiencing a slowdown.
### Broader Economic Context and Policy Responses
India's overall economic trajectory is supported by healthy current account balances and external positions, with services exports remaining strong. Multiple institutions project India's GDP growth for FY27 to range between 6.5% and 7.0%, reflecting underlying resilience. For instance, the ET-PwC survey indicates that 78% of respondents expect growth within this band. The International Monetary Fund (IMF) has revised its growth projection for India to 6.4% for both FY26 and FY27. Moody's expects India to remain the fastest-growing G20 economy with growth of 6.4% in 2026 and 6.5% in 2027.
The RBI has been actively managing liquidity and interest rates, having cut its repo rate to 5.25% in December 2025. While some forecasts suggest no further rate cuts are imminent due to a slight uptick in inflation, others see policy space remaining. Fiscal policy has also shifted towards supporting consumption through income tax and consumption tax adjustments. The central government's fiscal deficit is targeted at 4.4% of GDP for FY26, with a modest reduction projected for FY27.
The gems and jewellery sector, a key export component, has seen a decline in exports in December 2025, partly due to geopolitical uncertainties and reduced demand in key markets like the US. This highlights the sensitivity of export-oriented sectors to global trade friction.
Overall, while India's economy demonstrates resilience, driven by strong domestic demand and supportive policies, the evolving global trade landscape and the timeline for the India-US trade deal remain critical factors to monitor for sustaining its growth momentum.