The GDP of India passed the expectations in the second quarter of 2025, after a first quarter already solid, thanks to favorable cyclical factors such as a low inflation and the cuts of the rates by the Reserve Bank of India (RBI). This robust performance in the first half of 2025 should translate into a higher average growth within the year. We therefore revised our growth predictions, bringing them from 6.4% to 6.9% and on GDP for 2026, from 6.3% to 6.5%. He writes it Carlos Casanova, Senior Economist, Asia of Union Bancaire Privée (UBP) underlining that instead the average forecast of the IPC for 2025 at 3.1% was reviewed downwards, with the inflation that should remain below the lens in the short term and rise to 4-5% in 2026, a value that still falls within the RBI range and does not represent a problem for consumption.
India attracts capitals
The RBI has already implemented three rates cuts in 2025, including a significant reduction of 50 basis points in June which brings the total of the cuts to 100 base points, and by the end of 2026 there are 2-3 cuts. The next monetary policy decision is scheduled for October and a reduction of 25 basis points is highly likely. If the climatic conditions in the Monsons season should remain favorable, and the inflation should remain contained, there may be further rates reductions also in December.
In 2026, growth should be supported by a tax cut aimed at stimulating consumption and continuous public investments in the infrastructures, with the impact of Trump’s duties which should gradually attenuate in the second half of the year.
Solid fundamental and reforms push foreign afflusted
However, the tax conditions – explains the expert – will still be less accommodating in the medium term after a temporary stimulus in the next quarters. The Finance Minister Nirmala Sitharaman introduced tax exemptions for 10 million families in his latest budget, while increasing public spending for infrastructure and thus slightly reducing the rhythm of tax renovation in 2025. Tax policy remains bound to the commitment of India to reduce its deficit to improve its medium -term prospects.
This trend should continue to feed the affluent towards Indian assets, in particular the obligations, thus compensating for some drops deriving from geopolitical tensions. In addition, more solid fundamentals could strengthen direct foreign investments in key sectors such as manufacturing and businesses to businesses, especially if accompanied by reforms aimed at liberalizing these sectors for foreign investors.
The United States and the European Union hold a significant altitude of intellectual property in sectors such as technology and pharmaceuticals, in which India is well positioned to operate as a supplier. In addition, China is evaluating the transfer of some of its production and assembly activities with low added value, offering skills in the supply chains, in particular in electronics and electric vehicles, at a lower cost. The duties imposed during the Trump administration could, in the long term, prove advantageous if they encourage India to pursue the necessary reforms to diversify their economy.
Investors, what implications?
The long -term investment prospects for India remain unchanged and structurally positive. We plan that the potential growth rate of India will remain between 6.5% and 7.0% in the next ten years. In addition, the country should become the third world economy by 2030 by exceeding Germany and Japan, and the fourth largest consumption market in the world in 2027, after the United States, China and the European Union, however distinguishing itself for the growth of the growth of the fastest consumption of all.
In relative per capita terms, India is significantly behind many other emerging markets and this underlines the need for substantial investments in urbanization and infrastructure, which should lead to growth rates supported in the next decades.
Although the issue of duties does not represent a direct threat for most of the Indian companies listed on the stock exchange, it has a significant impact on small and medium -sized enterprises (SMEs), with probable repercussions on employment and on the relative climate of trust. Despite these challenges, the combination of monetary and fiscal training measures led analysts to predict a recovery in the growth of profits at 16% in 2026. However, this optimism depends on the improvement of the growth of sales and margins in most sectors, elements that still remain to be verified.
Finally, the Indian Rupia (INR) has become one of the Asian currencies with the weakest performance this year, influenced by the RBI rates cycle of rates, which reduced the differential rate differentials with the United States, together with the portfolio deceased deriving from the weak sentiment. However, the resumption of the cuts of rates by the Federal Reserve in the second half of 2025 could partially alleviate the pressure on the Rupia, potentially providing moderate support for Indian assets.
