Goldman Sachs has raised its real GDP growth forecast for India to 6.8% for calendar year 2026, up 30 basis points from its earlier estimate, citing lower oil prices, easing supply disruptions and resilient domestic activity after the US-Iran peace deal.

The investment bank now expects stronger economic growth, lower inflation, and an improved fiscal and external position as easing tensions in the Middle East reduce crude oil prices and support economic activity. It has also raised its FY27 GDP growth forecast by 40 basis points to 6.5%.

The bank noted that India remained resilient through the Middle‑East shock as fiscal and quasi‑fiscal measures absorbed much of the earlier energy‑price spike, limiting pass‑through to consumers and helping consumption hold up into March and April. Real GDP growth in Q1 CY26 printed at 7.8% year‑on‑year, about 50 basis points above Goldman Sachs’ previous forecast, driven by stronger investment and services activity.

According to the report, the recent peace agreement has removed a key tail risk for India’s macro trajectory by triggering a correction in global crude prices and easing supply constraints. “The recent US‑Iran peace deal should improve India’s growth outlook,” Goldman economists Santanu Sengupta and Arjun Varma wrote, highlighting that lower oil prices have “taken out the risk of additional fuel pass‑through to consumers.”

At the same time, indicators that had weakened during the conflict are beginning to normalise. Investment‑related metrics such as port cargo traffic showed a recovery in May, with port cargo traffic growth at a four‑month high as supply bottlenecks eased from their March–April troughs. Goldman Sachs said high‑frequency data in April and May point to resilience in both services and manufacturing, underpinned by strong three‑wheeler and passenger‑vehicle sales, robust services exports and firm manufacturing activity.

Consumption, investment and fiscal space

The bank expects consumption growth to moderate in Q2 and Q3 2026 as households absorb the impact of earlier pump price hikes, with some spillover into Q3. It also flagged weather‑related uncertainty and Indian Meteorological Department forecasts of heatwaves as a near‑term headwind, “particularly to rural consumption growth.”

However, from Q4 onwards Goldman Sachs does not see “incremental drag on consumption,” arguing that the lower oil price path implies limited need for further hikes in retail fuel prices. On the investment side, gross fixed capital formation rose to a six‑quarter high of 10.8% year‑on‑year in Q1 CY26, supported by robust automobile production and stronger imports of investment goods, and the report notes that easing supply disruptions should underpin a further recovery.

The peace‑driven correction in commodity markets is also easing fiscal pressures. The sharp fall in global urea prices and lower crude benchmarks are expected to reduce upside risk to the fertilizer subsidy bill relative to previous assumptions and “help alleviate near‑term fiscal pressures,” with the government already indicating that FY27 fertilizer subsidy requirements could be reassessed.

On the back of a softer crude trajectory and moderating petrochemical prices, Goldman Sachs has cut its headline CPI inflation forecast for CY26 by 20 basis points to 4.4% year‑on‑year, and for FY27 by 30 basis points to 4.9%. The bank has also trimmed its core goods inflation forecasts for CY26 and FY27 by 30 basis points and 50 basis points respectively, to 3.2% and 4.1%, leading to lower overall core inflation projections of 4.2% and 4.5%.

Despite this disinflationary impulse, the economists retain their base‑case call of a cumulative 50 basis points of Reserve Bank of India rate hikes in 2026—25 basis points each in the October and December policy meetings—taking the repo rate to 5.75%. They caution that if the pass‑through from elevated polymer prices is more limited, or if petrochemical prices remain lower for longer, “there is a risk that the RBI may defer the policy tightening cycle.”

On the external side, Goldman Sachs has lowered its current account deficit forecast for CY26 by 20 basis points to 1.1% of GDP. The revision reflects a reduced oil import bill—now pegged at about US$215 billion, or 5.5% of GDP—and stronger‑than‑expected remittances, which are now projected at US$140 billion (3.7% of GDP), up from an earlier US$138 billion estimate. Incorporating the new current‑account assumptions, the bank now expects a balance‑of‑payments surplus of 0.7% of GDP in 2026, compared with 0.6% previously.

FX view and market implications

In currencies, Goldman Sachs believes the Reserve Bank of India’s recent capital‑flow measures, announced at the June monetary policy meeting, will “help stem depreciation in the USDINR.” Its FX strategists see the rupee as fairly valued on a trade‑weighted basis, somewhat expensive versus the Chinese yuan but relatively cheap against several higher‑carry emerging‑market currencies, and have recently recommended going short Thai baht against the Indian rupee.

The improved macro profile—higher growth, lower inflation, a narrower current account deficit, and eased fiscal pressures—strengthens India’s relative positioning among large emerging markets in the wake of the US‑Iran peace deal, the report suggests. For investors, Goldman Sachs emphasises that the note should be treated as “only a single factor” in investment decisions, but the direction of revisions underscores a more constructive stance on India’s medium‑term macro outlook.