According to the report, India’s growth is expected to hold up at 7.5% and 7% for the next two fiscal years, respectively and will be supported by rising demand and investment. This is in sharp contrast to a 3.1% average growth projected globally over the next five years.
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Stellar performance in the manufacturing and construction segments had propelled domestic second quarter growth, following improved demand conditions and cuts in GST.
The medium-term growth outlook is supported by a confluence of factors, the report highlighted, including the prospect of a US–India trade deal, benign inflation conditions, relatively low interest rates and a lower tax burden for households.
These tailwinds are expected to cushion the impact of external volatility and sustain consumption and investment momentum into fiscal 2027.
Economic growth in the United States, the United Kingdom and the euro area is set to run below historical norms, the report showed, while China’s growth is seen to undershoot its long-term average by roughly three percentage points.Inflation dynamics have turned decisively favourable, CareEdge said. Consumer Price Index (CPI) inflation is projected to average 2.1% in fiscal 2026, aided by broad-based moderation across categories, particularly food.
However, with 2026 providing a low base, inflation is expected to normalise in the following year, rising to an average of around 4%, closer to the central bank’s medium-term target.
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Finally, global factors that have helped suppress inflation are expected to turn less supportive. Commodity prices are likely to stabilise rather than decline further, and currency-related imported inflation could re-emerge as the rupee adjusts in line with fundamentals, the report said.
“Good monsoon, benign commodity prices and GST rationalisation are positives for inflation,” the report added.
The RBI ended 2025 with its most aggressive rate-cutting cycle in six years, slashing benchmark repurchase rates by a cumulative 125 basis points from 6.5% in February to 5.25% in December.
Governor Sanjay Malhotra has pivoted to a more growth-friendly stance, citing brisk GDP expansion of 8.2% in the July-September quarter and historically low retail inflation, which hit 0.25% in October and has remained below the 4% target since February 2025.
The coming year will also test the Reserve Bank of India’s policy move as it tries to balance moderating inflation against early signs of growth normalisation.
These dynamics shape the central bank’s policy committee’s forward guidance. While there remains scope for one additional 25-basis-points rate cut, the expected move by the RBI to preserve growth dynamics argues against an aggressive easing cycle. Instead, the central bank is likely to pause after limited easing, preserving policy and anchoring inflation expectations as the economy transitions to a more sustainable price environment.
In this context, monetary policy is shifting from fighting inflation to managing its return to target — ensuring that growth remains strong while price stability is preserved over the medium term, the report showed.
The rupee has seen some pressure against the US dollar in recent months, weighed down by a widening trade deficit, muted investment inflows and negative sentiment linked to delays in the India–US trade deal, the report said.
In response, the Reserve Bank of India has scaled back its foreign-exchange interventions, allowing the currency to adjust gradually to underlying fundamentals, while retaining the option to step in to curb excessive volatility.
On a real effective exchange rate (REER) basis, the rupee remains undervalued by about 3% as of end-October, suggesting limited risks of a disorderly correction despite near-term weakness.
Expectations of US Federal Reserve rate cuts, a softer dollar and a manageable current account deficit should ease pressure on the currency, while progress on a potential India–US trade agreement could help improve sentiment.
In addition, prospective inflows linked to India’s inclusion in the Bloomberg Global Aggregate Index are likely to provide a structural boost to foreign portfolio flows. Against this backdrop, the rupee is expected to trade around 89–90 per dollar in fiscal 2027, with RBI policy focused on smoothing volatility rather than defending any specific level.