India has a GDP at market exchange rates just a little larger than Japan and the UK. But, with a much bigger population, GDP per head is the second lowest of the G20 (the African Union is lower). At PPP exchange rates its GDP per head is just under USD13,000, one seventh of the US level.
Demographics
India's population is expected to continue growing over the next 25 years, with a high (68%) and stable share in the 15-64 year age group. These demographics support India's GDP growth. We see potential growth as 6.2% p.a.
Inflation
India's inflation rate fell from 6.2% year-on-year in October 2024 to zero in October 2025. Although rising since then it is still within the RBI's target range (4% +/- 2%). Rupee weakness and a high vulnerability to the imported oil price are the main risks to inflation but it is unlikely to rise much above the top of the target range, if at all. The IMF and OECD both see inflation averaging less than 5% in 2026.
GDP growth
GDP growth was 7.8% year-on-year in the final quarter of 2025 and 7.6% for the full year. Reform of GST and consumer incentives around Diwali boosted GDP in Q4. Prospects for growth in 2026 are overshadowed by the fact that India imports about 90% of its crude oil and roughly half of its natural gas.
Emissions
Low level of emissions per head, but continuing to rise. Little chance of net zero being achieved by 2050.
Fiscal Position
High level of government debt and still wide fiscal deficits are a concern. But strong nominal growth means that debt is likely to trend lower as a share of GDP in the next 5 years.
External Position
Current account deficit is sustainable, set to remain under 2% of GDP over the next four years. Net foreign liabilities only 10% of GDP.
Money and Credit
Private sector credit growth has picked up, with the credit/GDP ratio rising from less than 90% in 2020. Broad money growth is around 10% year-on-year, which seems about right for India. The policy rate was cut to 5.25% in December, the fifth 25bp cut in 2025.
Governance and Competitiveness
Corruption levels still high (the score of 39, well below 50, indicates corruption is an impediment to growth). India itself is not seen as particularly innovative but Indian executives are powerful in Silicon Valley.
Currency
The Indian rupee, after recent weakness, is fairly valued against the dollar on the GDP-adjusted PPP measure.