India is expected to maintain strong economic momentum in 2025–26 , with growth projected at 7.2 per cent , even as higher tariffs imposed by the United States create external headwinds. According to a new United Nations assessment, robust domestic consumption and sustained public investment are likely to cushion the impact of trade-related pressures and keep the economy on a stable growth path.
UNDESA’s Growth Outlook for India
The projection comes from the United Nations Department of Economic and Social Affairs (UNDESA) in its flagship World Economic Situation and Prospects 2026 report. While the estimate is slightly lower than the 7.4 per cent growth projected by the Government of India in its First Advance Estimates, it still places India among the fastest-growing major economies globally .
On a fiscal-year basis, the UN body expects India’s growth to moderate gradually but remain healthy— 6.6 per cent in 2026–27 and 6.8 per cent in 2027–28 , reflecting a balance between strong fundamentals and global uncertainties.
Domestic Demand and Public Investment as Key Drivers
The report highlights resilient household consumption and continued public investment as the main engines of growth. Recent tax reforms and accommodative monetary conditions are expected to provide near-term support to consumer spending.
On the supply side, steady expansion in manufacturing and services is projected to underpin economic performance. India has also seen robust growth in gross fixed capital formation , driven largely by government spending on physical and digital infrastructure, defence modernisation, and renewable energy projects . These investments are strengthening productive capacity and supporting medium-term growth prospects.
Impact of US Tariffs on Trade
UNDESA cautioned that persistently high US tariffs could dampen India’s export growth in 2026, particularly because the United States accounts for about 18 per cent of India’s total exports . However, the report noted that several key export categories—such as electronics and smartphones —are likely to remain exempt from the higher tariff regime.
Moreover, strong demand from alternative markets in Europe and the Middle East is expected to partially offset the impact of weaker US-bound exports, reducing the overall drag on growth.
Currency Trends and External Sector Assessment
The report observed that the Indian rupee stabilised against the US dollar in the first half of 2025, aided by broad dollar weakness. It later faced mild depreciation pressures due to stronger US growth, trade uncertainties, portfolio outflows, and tariff-related concerns.
Despite these challenges, India’s solid economic fundamentals are expected to support currency stability. The country’s real effective exchange rate (REER) improved to 100.9 in 2025 from 104.7 in 2024 , signalling a relative gain in external competitiveness and better alignment with trade fundamentals.
Why the Projection Matters
The UN’s outlook underscores India’s growing ability to absorb external shocks through strong domestic demand and public-led investment. While global trade tensions and tariff uncertainties pose risks, India’s diversified growth drivers, expanding infrastructure base, and competitive manufacturing sector provide important buffers.
Quick Facts for Exams
Month: Current Affairs - January 10, 2026
Category: global trade context