India’s growth engine has plenty left in the tank

India's economy is projected to maintain robust growth, with real GDP expected to expand by 6.5-7 percent in the current fiscal year, while nominal GDP growth is anticipated to reach 11-12 percent. Corporate earnings growth could accelerate to 17 percent next fiscal year, up from 14 percent in the upcoming fiscal. Despite geopolitical challenges and elevated energy risks, a strong bank credit growth and firm domestic demand indicate that India's growth engine still has considerable potential.

Jefferies, a prominent brokerage, highlighted that economic indicators have demonstrated greater resilience than initially expected. Bank credit expanded by 19.1 percent year-on-year at the end of August, while corporate lending grew by 21.6 percent in July. Loans to micro, small, and medium-sized enterprises increased by 24.9 percent, buoyed by deposit growth of 17.8 percent in August.

These developments suggest that recent GST and labor reforms, as well as efforts to improve ease of doing business, are beginning to generate positive impacts on the economy.

Additionally, domestic demand has remained robust, with GST receipts rising by 14.8 percent year-on-year in August, and power demand growth accelerating to 9.4 percent during April-August compared to 1.8 percent in January-March. Residential real estate sales across the nation's top seven cities surged by 7 percent year-on-year in the first seven months of 2026, marking a noticeable improvement from the 1 percent decline observed in 2025.

India's growth prospects remain sensitive to developments in the Middle East, particularly through energy prices. At the time of the report, Brent crude was trading around USD 106 per barrel, while disruptions along key oil routes were putting additional pressure on energy markets. Jefferies expects the Reserve Bank of India (RBI) to raise interest rates by 50 basis points by the end of 2026, from its current rate of 5.25 percent.