India's Economic Outlook Under the New China-India Trade Agreement: Resilience and Structural Challenges for Growth in 2026

Deep Insights: Structural Evolution of the Indian Economy Under the New US-India Trade Framework

According to Goldman Sachs research, the Indian economy is showing resilience beyond expectations in 2025, despite external headwinds such as US tariffs. From a macroeconomic perspective, India's GDP growth is expected to remain strong in the coming years, projected to reach 6.9% year-on-year in 2026 (after adjusting for actual inflation). This indicates that the Indian economy possesses strong endogenous recovery capabilities in digesting external uncertainties.

Resilience Driven by Consumption and Policy Easing ext{Consumption Market:} The driving force behind the recovery in the Indian consumption market stems mainly from the Reserve Bank of India's (RBI) policy rate cuts, deregulation of banks, and government tax cuts. In 2025, actual private consumption growth reached 7.4%. Particularly noteworthy is the sustained strength in rural consumption, benefiting from summer crop harvests and local government welfare spending, which suggests steady growth in rural consumption in 2026. For the urban population, although consumer credit growth has recovered moderately, the cumulative effect of a low-inflation environment and tax relief is laying the foundation for continued expansion on the consumption side. ext{Macro Policy:} The synergy between the RBI's liquidity injection (already injected at ₹6.3 trillion) and fiscal stimulus policies is effectively supporting the economy's endogenous growth momentum. Research predicts that consumption growth is expected to rise from 7% to 7.7% by 2026, demonstrating the potential of the consumption market as an engine for economic growth.

External Environment: Adjustment Effect of Trade Agreements on Growth ext{Trade Landscape:} The trade agreement announced between the US and India in February, by reducing India's tariffs on US goods from 25% to 18%, brings India's trade barriers closer to those of major Asian economies. Analysts predict this change will bring an incremental increase of about 0.2 percentage points to India's annual GDP growth. However, from a macroeconomic balance perspective, this trade facilitation may be accompanied by a structural increase in imports of non-oil and non-gold commodities. Research warns that even with improvements on the consumption front, India's current trade deficit with the US after the 2026 trade agreement could widen to 2.8% of GDP, primarily driven by changes in import structure.

Long-Term Risks and Investment Logic ext{Inflation and Policy Path:} Although the inflation rate remains low in 2025, core inflation has risen due to the increase in the prices of precious metals like gold.### Long-term Risks and Investment Logic ext{Inflation and Policy Path:} Although the inflation rate is expected to remain low in 2025, core inflation has risen due to the rise in precious metals like gold. Inflation expectations for 2026 are expected to approach the Reserve Bank of India's 4% target range. Given the RBI has taken aggressive interest rate cut measures, the room for subsequent policy easing may be limited. If uncertainty in US trade policy persists, the risk of dragging down economic growth remains, potentially increasing the urgency for the RBI to cut rates further. ext{Investment Logic:} Despite trade policy uncertainties, the new agreement provides the necessary policy certainty for domestic investment,有望 alleviate concerns about capital flows. In the long run, the structural upgrading of the Indian economy, especially in the service sector and digital economy, will be key to withstanding external shocks and achieving high-quality growth. The release of capital expenditure (Capex) in manufacturing will be a litmus test for whether the benefits of the trade agreement can translate into actual economic growth.