OECD sees India growing 6.3% in FY26, projects global slowdown

The Paris-based OECD in its June Economic Outlook lowered India's growth rate to 6.3% in FY26 and 6.4% in FY27, compared with earlier projections, made in March, of 6.4% for FY26 and 6.6% for FY27.

It projected global growth to slow to 2.9% in 2025 and 2026 from 3.3% in 2024, trimming its estimates from March. It said the US economy would grow only 1.6% in 2025 and 1.5% in 2026, citing US President Donald Trump’s tariff announcements.

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While private consumption in India is set to strengthen gradually, supported by rising real incomes, moderate inflation, tax cuts, and an improving labour market, investments will be buoyed by falling interest rates and strong public capital expenditure, the OECD report said.

“Monetary conditions remain restrictive, despite policy rate cuts in February and April. Headline inflation eased to 3.2% in April 2025 and is now within the central bank’s target range of 4% (± 2%), largely due to a substantial moderation in food inflation, which accounts for nearly half of the CPI basket, and declining energy prices," it said.

“Easing food prices reflect a strong autumn harvest, and government interventions, such as export restrictions. As a major oil importer, India has benefited from lower global crude oil prices in recent months, which reduced domestic fuel costs and helped contain input costs in energy-intensive sectors such as transport, manufacturing, and agriculture," it added.

However, the OECD warned that higher US tariffs could weigh on exports, while inflation is likely to remain near 4%, with risks from a weak monsoon or rising global commodity prices.

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Globally, rising trade barriers and policy uncertainty have hurt business and consumer confidence, leading the OECD to downgrade its growth forecast and warn of broad-based impacts on income and jobs.

“In the past few months, we have seen a significant increase in trade barriers as well as in economic and trade policy uncertainty. This sharp rise in uncertainty has negatively impacted business and consumer confidence and is set to hold back trade and investment," the report said.

“Weakened economic prospects will be felt around the world, with almost no exception. Lower growth and less trade will hit incomes and slow job growth," it added.

India, facing potential GDP losses of up to 0.6% due to the Trump administration's escalated tariffs according to a Goldman Sachs analysis, is particularly vulnerable, especially in sectors like pharmaceuticals, textiles, and automobiles.

In response, India is actively negotiating a bilateral trade agreement with the US, aiming to finalize it soon, to mitigate the impact and strengthen economic ties.

“Tariff increases and broader trade tensions may dampen investor sentiment, particularly in export-oriented sectors such as chemicals, textiles, and electronics. However, the overall GDP effects will be limited by the moderate share of exports in GDP, with merchandise exports towards the United States accounting for only 2.1% of GDP," the OECD report said.

“India has scope to accelerate trade liberalization, simplify customs procedures, and reduce tariffs. Further reforms are needed to improve the efficiency of logistics networks, upgrade digital infrastructure, and reduce regulatory uncertainty, especially in tax administration," it said.

“Enhancing the availability and accessibility of long-term finance, including through deepening capital markets and improving credit access for SMEs, would further strengthen the investment climate," it added.

Also read: Centre eyes large dividend from public sector banks in FY25

Meanwhile, UBS on Tuesday upgraded India’s FY26 GDP growth forecast to 6.4% from 6%, citing resilient domestic demand and potential trade gains, with stronger household consumption supported by favourable monsoon prospects and policy stimulus.

India’s Central government's economic outlook for FY26 is cautiously optimistic, with GDP growth forecast between 6.3% and 6.8%; the finance ministry expects to achieve the higher end if global conditions improve but remains confident of meeting the lower bound despite global challenges.