OECD pegs FY26 India growth at 6.3%

New Delhi: India will continue to experience "strong and broadly stable economic growth", OECD said Tuesday while pointing out that global economic growth is slowing more than expected as the tariff war takes a bigger toll on the US economy.

The Organisation for Economic Co-operation and Development projects India to remain one of the world's fastest-growing economies in FY26, with its gross domestic product (GDP) growth forecast at 6.3%. The country's economic momentum will be driven by private consumption, supported by rising incomes and lower personal income taxes, it said in its economic outlook released Tuesday.

In her budget speech, finance minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh per annum would not need to pay income tax under the new tax regime.

For FY27, the Paris-based organisation projects 6.4% growth. India's GDP grew to a four-quarter high of 7.4% in Q4 of FY25, bringing full-year growth to 6.5%, according to official data released last week.

While the OECD warned that new tariffs imposed by the US could dampen investor sentiment, especially in export-oriented sectors like chemicals, textiles and electronics, the overall impact on India's growth is expected to be limited.

For India, the OECD projects inflation to moderate further to 4.1% in FY26 and 4% in FY27. It was 4.6% in FY25.

This will pave the way for further policy rate cuts by the central bank's monetary policy committee, according to OECD.

Policy prescription

Looking ahead, the organisation recommended phasing out tax expenditures, rationalising subsidies and expanding tax bases would improve the quality and sustainability of public finances, create room for enhanced social protection, increased public investment and strong labour market policies.

Additionally, the OECD highlighted the need for policies to focus on increasing female workforce participation through coordinated reforms in childcare access, safe and affordable transportation, skill development and enforcement of workplace protections.



Risks to global growth

The global economy is projected to slow from 3.3% last year to 2.9% in 2025 and 2026, it said, trimming its estimates from March for growth of 3.1% this year and 3.0% next year.

The US President Donald Trump's policies have raised average US tariff rates from around 2.5% when he returned to the White House to 15.4%, highest since 1938, it said. India stares at a reciprocal tariff of 26%, which was put on hold for 90 days. However, a higher 10% tariff is effective on all imports into the US.

But the growth outlook would likely be even weaker if protectionism increases, further fuelling inflation, disrupting supply chains and rattling financial markets, the organisation said.

Globally, GDP growth is anticipated to decline to 2.9% in 2025 from 3.3% in 2024, assuming tariff rates as of mid-May persist despite ongoing legal challenges.

"The slowdown is concentrated in the US, Canada and Mexico, with China and other economies expected to see smaller downward adjustments," it said.

In the US, economic growth is forecast to slow to 1.6% in 2025 from 2.8% in 2024, while China's growth is expected to fall to 4.7% from 5% in the same period.