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India is expected to grow by 7.2% in the financial year 2025-26, with consumption and public investment expected to “largely offset” the impact of the tariffs by the United States, the United Nations Department of Economic and Social Affairs (UNDESA) said in a report.
This 7.2% estimate, presented in the UNDESA’s World Economic Situation and Prospects 2026 report, is slightly slower than the 7.4% growth predicted by the Indian government on Wednesday (January 7, 2026) in its First Advance Estimates of GDP for 2025-26.
The report had predicted India’s growth to be 7.4% in calendar year 2025. On a fiscal year basis, the report predicts that India will grow at 6.6% and 6.8% in 2026-27 and 2027-28, respectively.
“In India, growth is estimated at 7.4% for 2025 and forecast at 6.6% for 2026 and 6.7% for 2027, supported by resilient consumption and strong public investment, which should largely offset the adverse impact of higher United States tariffs,” the report said. “Recent tax reforms and monetary easing should provide additional near-term support.”
However, the report did note that, going ahead, the U.S. tariffs could begin to weigh on the economy if they persist.
“However, higher United States tariffs could weigh on export performance in 2026 if current rates persist, as the United States market accounts for about 18% of total exports from India,” it said.
On the other hand, the report added that, while the tariffs may adversely affect some product categories, key exports such as electronics and smartphones are expected to remain exempt. In addition, it said strong demand from other major markets, including Europe and the Middle East, is projected to partially offset the impact of the tariffs.
“On the supply side, continued expansion in manufacturing and services sectors will remain a key driver of growth throughout the forecast period,” the report said.
It noted that investment trends among developing economies diverged in 2025.
“India recorded strong growth in gross fixed capital formation, led by higher public spending on physical and digital infrastructure, defence, and renewable energy,” the report said. “The Cooperation Council for the Arab States of the Gulf (GCC) countries continued to undertake large-scale capital investments aligned with long-term economic diversification strategies.”
However, in contrast, the report noted that China saw a contraction in its fixed asset investment through the first three quarters of 2025, due to the ongoing weakness in the property sector in that country.
“The Indian rupee stabilised against the United States dollar in the first half of the year, supported by broad dollar weakness,” the report said. “However, in the second half, the Indian rupee edged lower following stronger-than-expected growth in the United States and ongoing trade negotiations.”
It added that portfolio outflows and higher U.S. tariffs added to depreciation pressures on the Indian rupee.
“Nonetheless, robust economic performance in India is expected to provide support for the country’s currency in the near term,” the report noted.
The data in the report showed that India’s real effective exchange rate — which assesses the effect of currency changes and inflation differentials on the international competitiveness of the rupee — improved to 100.9 in 2025 as compared to 104.7 in 2024.
A rise in the index denotes a fall in competitiveness and vice versa.
Published – January 08, 2026 11:20 pm IST
