India’s economy is holding steady despite global headwinds, with strong foreign investment inflows and easing inflation offsetting pressures from currency weakness and slowing exports, according to CareEdge’s October 2025 economic pathway report.
The agency projects gross domestic product (GDP) growth at 6.5 per cent in FY26, maintaining a cautious optimism in the face of global trade tensions and fluctuating commodity prices. While domestic demand remains uneven, robust FDI inflows, healthy services trade, and lower inflation are providing crucial support to India’s economic outlook.
Foreign direct investment inflows rose sharply, with gross FDI increasing 33 per cent year-on-year in the first four months of FY26. Net inflows doubled to USD 21.4 billion, buoyed by moderating repatriations and higher investor confidence, the report said. This surge has helped stabilise India’s balance of payments amid persistent foreign portfolio outflows.
Despite external uncertainty, India recorded USD 10.8 billion in net inward FDI during April–July, a marked improvement from USD 3.5 billion in the same period last year. CareEdge attributes this rise to India’s expanding manufacturing base and resilience in the services sector.
Trade Deficit Widens Slightly Amid Tariff Concerns
India’s merchandise trade deficit rose marginally to USD 122.9 billion during the first five months of FY26, driven by weaker petroleum exports and a modest rise in imports. Non-petroleum exports, however, grew 7.3 per cent, supported by engineering and electronic goods, with the latter up by 39.8 per cent led by telecom instruments.
CareEdge warned that the impact of recent 50 per cent US tariffs remains a “critical monitorable”, as trade front-loading has temporarily supported export figures. Merchandise exports are projected to contract by around 4 per cent in FY26, while imports may rise by a marginal 0.5 per cent.
Consumer price inflation edged up slightly to 2.1 per cent in August, as food prices moved out of deflation, but remained comfortably below the Reserve Bank of India’s target. CareEdge expects average CPI inflation to stay at 2.4 per cent for FY26, aided by subdued food prices, contained demand, and GST rate cuts expected to lower inflation by 70–90 basis points annually.
The RBI, in its October policy review, kept the repo rate unchanged at 5.5 per cent, while lowering its inflation forecast to 2.6 per cent from 3.1 per cent earlier. The central bank also raised its GDP outlook to 6.8 per cent, though CareEdge retained its own projection of 6.5 per cent, citing tariff-related risks.
Rupee Weakens Despite Liquidity Comfort
The Indian rupee depreciated 0.6 per cent against the US dollar in September, touching record lows due to persistent foreign portfolio outflows and the impact of US tariff measures. The report projects the rupee to trade between 85–87 per USD by the end of FY26, with the RBI expected to intervene to limit volatility.
Meanwhile, domestic liquidity conditions remain comfortable, supported by government spending and a recent reduction in the cash reserve ratio (CRR). The 10-year government security yield has eased, ranging between 6.3 and 6.5 per cent
Urban consumer sentiment improved modestly in September, though it remains in the pessimistic zone, CareEdge said. Rural optimism is relatively stronger, aided by a healthy southwest monsoon 8 per cent above the long-period average and increased kharif sowing.
Bank credit growth stood at 10.4 per cent year-on-year, outpacing deposits at 9.5 per cent, but slower than the 13 per cent growth seen last year. The RBI’s recent measures to enhance credit flow and ease of doing business are expected to support lending activity going forward.
Despite trade headwinds and currency depreciation, CareEdge said India’s macroeconomic fundamentals remain strong, anchored by steady growth, controlled inflation, and resilient capital inflows. The agency expects the current account deficit to stay manageable at 0.9 per cent of GDP in FY26, reinforcing India’s position as one of the most stable emerging markets amid global uncertainty. |
