Opinion Goldilocks phase of India’s economy can be sustained
AI can increase the performance of the education and health sectors. A young population with a median age of around 28 years is another key driver of growth for India
Domestic tailwinds can keep the Goldilocks period going in FY26-27 and beyond. The Indian economy is in the Goldilocks zone with high growth and low inflation. NSO’s first advanced estimates show that real GDP growth would be 7.4 per cent in FY26. Nominal growth is expected to be 8 per cent. CPI inflation is projected at around 2 per cent. Despite trade tensions and geopolitical risks, the global and US GDP growth could be higher than expected due to fiscal support and AI-led investment. The WTO revised its forecast of merchandise trade volume from 0.9 per cent to 2.4 per cent.
Domestic tailwinds can keep the Goldilocks period going in FY26-27 and beyond. From the Centre, there has been a sustained shift towards higher capital expenditure. States are also increasing their capex. Income tax and GST reforms may continue to raise consumption. So too can unconditional cash transfers of over Rs 2 lakh crore to women across several states. Reduced interest rates and the regulatory reforms undertaken by the RBI will improve growth.
India has weathered the US tariffs impact. A diversified export basket reduces dependence on a few tariff-exposed sectors or destinations. Well-designed FTAs can provide market access, lower effective tariff barriers, and more predictable trading rules, allowing exporters to retain market share even in a protectionist milieu. The current account deficit is under control. Together, these factors provide grounds for optimism, even as policymakers remain vigilant to global and domestic risks. GDP growth in FY27 could be between 6.5 per cent and 7 per cent. Nominal GDP growth would be higher as inflation is expected to be around 4 per cent in FY27.
To become a developed nation by 2047, India needs 7-8 per cent growth . The investment rate has to grow by 4-5 per cent. For higher investment, the savings rate needs to be enhanced. While parts of the private sector may still appear cautious, the current investment landscape suggests that momentum is building. Some estimates show corporate investment announcements between April and December in 2025 have surged to a decade-high of Rs 26.6 trillion.The reforms on income tax and GST, notifications on labour codes, and measures on quality control orders will boost the economy. Tech giants Google, Amazon and Microsoft have pledged billions in investments. The Centre’s Research, Development and Innovation scheme can catalyse private investment.
AI will make the education and health sectors efficient. A young population with a median age of around 28 years is another driver of growth. More cities will mean more infrastructure, and this will improve growth. Enhancing women’s empowerment will raise India’s GDP. So will the structural transformation from agriculture to manufacturing and services. In the last decade, industrial policy has taken on a more targeted and strategic character, with initiatives like Make in India and the PLI schemes.
Competition amongs states — announcing goals on GDP and GDP per capita — is a good sign. But freebies in states crowd out expenditure on infrastructure, health and education. There should be balance between welfare measures and development. The success of the Centre’s reforms will depend on implementation at the state level. Similarly, decentralisation of resources to panchayats and municipal councils is needed.
The writer is chairman, Economic Advisory Council to the PM
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