India’s economy concluded FY26 on a strong footing, with GDP growth remaining resilient at 7.8% in Q4 FY26, only marginally lower than the upwardly revised 8.0% recorded in the previous quarter. A  noteworthy performance, given the emergence of the Middle East crisis towards the end of the quarter and an increasingly uncertain global backdrop. Growth was broad-based on the sectoral side, with the exception of manufacturing, activity. On the expenditure side, resilient consumption and record growth in investment, underscored the economy’s underlying momentum. For FY26 as a whole, GDP growth accelerated to 7.7%, outperforming FY25 by 60 basis points, reflecting the effectiveness of domestic policy support, including income tax relief, GST rationalization, sustained government capital expenditure, and targeted measures to support exporters.

Looking ahead, the growth environment is expected to become significantly more challenging. Amidst the lingering Middle East crisis, energy shock and supply disruptions continue to pose risks to growth and inflation. Additional headwinds stem from the prospect of a below-normal monsoon associated with a strengthening El Nino event, which could weigh on agricultural output, rural demand, and food prices. At the same time, higher fuel costs, rising inflationary pressures, and the possibility of monetary tightening are likely to dampen consumption and industrial activity. Against this backdrop, we expect the economic slowdown to become more visible from Q1 FY27 onwards and revised our FY27 GDP growth forecast lower to 6.2%. The strong Q4 FY26 print may therefore represent the last quarter largely insulated from the cumulative impact of these emerging headwinds.