India’s Economic Outlook: A Deepavali Message of Optimism
Over the past year, Indian markets have been largely subdued, with broader indices ending flat and lagging several global peers. Soft corporate earnings, sharp downgrades to revenue and profit estimates, and ongoing geopolitical and macro headwinds have weighed on sentiment. The RBI, in response, has eased policy, cutting the repo rate from 6.5% to 5.5% during the year.
Markets did get a lift earlier, with the Nifty 500 rising about 12% between April and June 2025 on the back of regulatory tailwinds. But that momentum faded as worries around punitive U.S. tariffs, rising global tensions, strains in Indo-U.S. relations, and renewed FII outflows set in. As a result, the index has stayed largely flat since June, and near-term sentiment remains cautious.
However, not everything is bleak!
There are several encouraging signs that point to improving fundamentals. After 18 years, S&P Global Ratings has upgraded India’s long-term sovereign rating to ‘BBB’ from ‘BBB-,’ citing solid growth, credible monetary policy, and steady fiscal consolidation.
High-frequency indicators also show resilience. The HSBC India Composite PMI, an indicator that measures the overall performance of India’s manufacturing and services sectors combined, is at 61.0 in September, showing expansion in activity. Industrial production rose 4% year-on-year in August, a stronger pace than the first half of the year, suggesting that the initial round of U.S. tariffs hasn’t hurt industry meaningfully.
Inflation trends, too, are moving in the right direction. CPI inflation fell to 1.54% in September, the lowest since 2017 and below the RBI’s lower tolerance band, helped by softer food and manufacturing prices. WPI inflation also cooled to 0.13%, pointing to broad-based easing in price pressures, giving the central bank room to stay accommodative.
On the fiscal side, government spending has picked up strongly. Capex was up 52% year-on-year in 1QFY26, compared to a contraction in the same period last year. This frontloaded push is beginning to bring in private investment and strengthen the infrastructure cycle.
The World Bank, too, shares this optimism — it has raised India’s FY26 GDP growth forecast to 6.5% (from the earlier 6.3%), citing stronger consumption, better farm output, and the boost from recent GST reforms. Despite tariff worries, India remains the world’s fastest-growing major economy, with 6.5% growth in FY25 and 7.8% in Q1FY26.
Adding to the positives, the GST Council has overhauled the tax structure, moving to just two rates, 5% and 18% with a special maximum of 40% for ‘sin’ products. Rates have been cut across FMCG, fertilisers, agri, medical equipment, cement, autos, and durables, while health and life insurance are now GST-exempt. The Council has also asked companies to pass on these benefits to consumers. Alongside the ₹1 lakh crore direct tax exemption announced earlier, these reforms show a clear intent to support household demand and revive consumption.
Looking Ahead
All in all, while the market’s near-term mood remains cautious, India’s macro backdrop looks increasingly steady with low inflation, stronger public investment, and reform-led policy support laying the groundwork for a more durable recovery.
As we step into the festive season, this Deepavali brings more than just lights; it brings renewed confidence that brighter days are ahead for the economy and investors. The foundations are in place, and policy support is strong.
Here’s wishing you and your family a prosperous and optimistic Deepavali.
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