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Global financial services firm UBS has revised its forecast for India’s real gross domestic product (GDP) growth for FY26, raising it to 6.4 per cent from an earlier estimate of 6 per cent. The revision comes on the back of stronger-than-anticipated economic momentum, particularly visible in the March 2025 quarter.

UBS’s India Composite Economic Indicator (CEI) signaled sustained economic strength in April, with the seasonally adjusted index climbing 1.1 per cent month-on-month. This figure closely mirrors the average seen during the March quarter, reflecting steady economic performance.

Demand And External Factors Drive Forecast Upgrade

Tanvee Gupta Jain, Chief India Economist at UBS Securities, attributed the upward revision to several positive indicators. Robust domestic demand, signs of easing global trade tensions, and the ongoing support from lower crude oil prices are key contributors to the improved outlook, Jain stated.

The revised projection also takes into account a potential rebound in household consumption, particularly in rural areas. This recovery is expected to be aided by a favorable monsoon season and declining food prices. Urban consumption is also anticipated to strengthen, supported by possible fiscal measures such as tax reductions and moderating inflation.

UBS projects oil prices to average $65 per barrel in FY26, a figure that is expected to further ease cost pressures on the Indian economy. Nonetheless, the firm notes that investment growth may face constraints, pointing to global uncertainties, fiscal limitations in certain Indian states, and a high base effect from strong housing growth last year.

Q4 GDP Surges By 7.4 Per Cent

India’s economic rebound in the March quarter surpassed expectations. According to the National Statistical Office, real GDP expanded by 7.4 per cent year-on-year between January and March 2025, marking the highest quarterly growth in a year. For the full fiscal year FY25, real GDP growth stood at 6.5 per cent, slightly trailing the Reserve Bank of India’s (RBI) estimate of 6.6 per cent. Nominal GDP rose by 9.8 per cent to Rs 330.68 trillion.

The robust Q4 performance was driven by a sharp drop in imports, enhancing net exports, alongside a resurgence in fixed capital formation. However, private consumption growth moderated and government expenditure declined. On the gross value added (GVA) front, the economy expanded by 6.8 per cent, supported by upticks in construction, manufacturing, and services.

UBS Predicts RBI Rate Cuts

On the policy side, UBS anticipates a further easing of monetary policy, expecting the RBI to cut interest rates by 50 to 75 basis points in 2025, potentially reducing the repo rate to 5.5 per cent. The RBI’s Monetary Policy Committee is scheduled to meet on Friday, June 6.

"India's macro stability risks remain relatively contained. With the global backdrop remaining uncertain, we expect monetary policy to continue to do the heavy lifting to support India's growth momentum," UBS stated in its report.

Looking ahead, UBS expects the central government to maintain its focus on capital expenditure and predicts a favorable external environment for services exports. However, goods exports may continue to struggle amid ongoing global trade challenges.