Why CEA Nageswaran believes India will grow at close to 7% this year

New Delhi: The Indian economy is likely to grow closer to the upper end of the government’s projected range of 6.3-6.8% this financial year, buoyed by sweeping indirect tax reforms, chief economic adviser V. Anantha Nageswaran said on Monday.

India’s economy expanded by 6.5% in fiscal year 2025 (FY25), the slowest in four years, hurt by weak consumption and manufacturing.

“I am more comfortable now in saying that we will be taking towards the upper end of this range, rather than the lower end of this range,” Nageswaran said.

“High-frequency indicators for July and August suggest that even the second quarter may touch close to a 7%,” he added.

In the Economic Survey for 2024-25 presented in January this year, the government forecast the country’s gross domestic product to expand at 6.3-6.8% in FY26.

Speaking at a Network 18 event in the national capital, Nageswaran also reaffirmed the government’s commitment to keeping the fiscal deficit at 4.4% of gross domestic product (GDP) in FY26.

India’s real GDP, adjusted for inflation, accelerated by an impressive 7.8% in the first quarter of FY26 (April-June), led by growth in services, manufacturing, construction and agriculture.

Nageswaran said that the latest round of tax changes under “GST 2.0” would deliver substantial gains to households and the broader economy.

“GST 2.0 is a combination of three components,” he said.

“One is the reduction in rates—many categories going from 18% to 5%, 12% becoming 5%. The second is the withdrawal of the compensation. These two are very positive for the households. The small minus is the one where a few categories saw rates rise from 28% to 40%,” he added.

He estimated that net household tax savings from the changes would be “upwards of ₹1 lakh crore ( ₹1 trillion).” Factoring in household consumption patterns, or marginal propensity to consume, the effect could multiply across the economy.

“Two to three rounds of multiplier effect… and the total impact on the economy will be even more than ₹2.5 lakh crore,” he said.

He, however, added that “other uncertainties and factors may dilute some of this translation of savings into aggregate demand or GDP growth.”

India rolled out a landmark rationalisation of Goods and Services Tax (GST) structure, effective Monday, marking the most sweeping reform since the regime’s launch in 2017.

The overhaul collapses the earlier four-tier structure into two slabs, 5% for essentials and priority goods, and 18% as the standard rate, while introducing a 40% levy on select luxury and sin items such as pan masala, aerated drinks, high-end cars and tobacco (whose rates remain unchanged for now but will be reviewed later).

On the fiscal outlook, Nageswaran said buoyant non-tax revenues and the extended festive season would help keep the deficit within target.

Bond yields, he added, remain attractive for investors, with borrowing costs having fallen by nearly 300 basis points over the past decade.

He cautioned, however, that external headwinds, including US tariffs on Indian exports and uncertainties around global trade, could shave off up to half a percentage point of GDP growth in the absence of domestic stimulus.

He cautioned, however, that external headwinds, including US tariffs on Indian exports and uncertainties around global trade, could shave up to half a percentage point off GDP growth in the absence of domestic stimulus.

The GST package would help offset much of that drag, he added.

Turning to services, Nageswaran said the recent tightening of US visa norms would have little immediate impact on Indian IT exports, as the changes take effect only in 2026.

US President Donald Trump signed an executive order on Friday that requires companies to pay $100,000 for every foreign worker brought under the H-1B visa, up from about $1,000 at present. This could deal a severe blow to aspirational Indians and companies that rely on Indian workers in the US.

Nageswaran urged the IT services sector to treat the disruption as a catalyst for diversifying business models, drawing a parallel to how the pharmaceutical industry responded to global patent challenges in the 1990s.

“Foreign direct investment flows remain robust, with $25 billion received in the April–June quarter, placing India on track for a record $100 billion in annual inflows,” he said.

Meanwhile, interest from multinationals in using India as a manufacturing hub under the “China-plus-one” strategy has not diminished despite tariff frictions, Nageswaran said.

Looking ahead, Nageswaran underscored deregulation and structural reforms as the next frontier for policy.

“From a structural reform perspective, focusing on education and skilling will be more important now,” he said.

Inflation, meanwhile, is expected to remain benign through the end of next calendar year, assuming a normal monsoon, Nageswaran added.

Turning to services, Nageswaran said the recent tightening of US visa norms would have little immediate impact on Indian information technology (IT) exports, as the changes take effect only in 2026.

He urged the sector to treat the disruption as a catalyst for diversifying business models, drawing a parallel to how the pharmaceutical industry responded to global patent challenges in the 1990s.

“Foreign direct investment flows remain robust, with $25 billion received in the April-June quarter, placing India on track for a record $100 billion in annual inflows,” he said.

Meanwhile, interest from multinationals in using India as a manufacturing hub under the “China-plus-one” strategy has not diminished, despite tariff frictions, Nageswaran said.

Looking ahead, Nageswaran underscored deregulation and structural reforms as the next frontier for policy.

“From a structural reform perspective, focusing on education and skilling will be more important now,” he said.

Inflation, meanwhile, is expected to remain benign through the end of next calendar year, assuming a normal monsoon, Nageswaran added.