India's economic landscape over the last 24 hours reflects a dynamic interplay of positive domestic indicators and looming global trade pressures. Prime Minister Modi highlighted India's robust economic growth, stating that the economy recorded a 7.8% growth in the first quarter of 2025-26, positioning it as the fastest-growing major economy globally. This positive sentiment is echoed by Fitch Ratings, which upgraded India's growth forecast for the current fiscal year to 6.9% from 6.5%, citing strong domestic demand and supportive financial conditions.

Inflation Outlook and GST Reforms

Inflation remains a key focus, with encouraging projections for the coming fiscal year. A Bank of Baroda (BoB) report forecasts India's retail inflation (CPI) to settle at 3.1% in FY26, attributing this to declining food prices and the positive impact of recent GST rate reductions. Similarly, research firm Crisil projects headline inflation to moderate to 3.2% for 2025-26, down from an earlier estimate of 3.5%, suggesting potential for a 25 basis points rate cut by the Reserve Bank of India (RBI) this year. Although CPI inflation saw a marginal uptick to 2.07% in August 2025 from 1.61% in July, this figure remains within the RBI's comfort zone of 2-6%.

The government's commitment to GST reforms is seen as a crucial step to stimulate consumption and reduce production costs, with a new GST reform package expected by Diwali (October 2025) to ease tax burdens on essentials and packaged goods.

Market Performance and Sectoral Trends

Indian equity markets have shown considerable resilience and optimism. The Nifty 50 index concluded the week strongly, surpassing the 25,100 mark, driven by GST cuts, hopes for US trade deal concessions, and an anticipated recovery in corporate earnings. The defense sector, in particular, has witnessed a significant rally, with the Nifty India Defence Index gaining 7% last week, fueled by increasing domestic demand and import substitution.

Challenges from US Tariffs

Despite the domestic buoyancy, the Indian economy faces a significant external challenge from the 50% tariff imposed by the United States on various Indian exports since August 27. This measure has severely impacted labor-intensive sectors such as the carpet industry, textiles, jewelry, and electronics. The carpet industry, heavily reliant on the US market, has seen business come to a standstill, leading to distress among industrialists and fears of job losses. In response, the Indian government is considering a package of mitigating measures, including subsidized interest rates, collateral-free loans, and credit guarantees for affected exporters, to prevent a loss of market share.

Private Sector Investment and Festive Season Outlook

While the overall economic environment is considered favorable with low inflation, soft interest rates, and improved corporate balance sheets, private sector investment and household spending have not picked up as expected. However, the upcoming festive season (September to December) is anticipated to boost consumption, with recent GST rate rationalization and income tax cuts for individuals expected to drive sales.