India's Economy Thrives Amid Global Challenges, Eyes Robust Growth

Economic activity in India witnessed a significant upturn in the December quarter, fueled by festive season demand and GST rate reductions. The UBS India Composite Economic Indicator suggests that this momentum persisted into January 2026, with robust growth underpinning a stable economic landscape characterized by solid domestic demand and mitigated macro stability risks.

According to the report, January's high-frequency indicators reveal an ongoing strong trend: retail two-wheeler sales climbed 21%, and passenger car sales increased by 9% year-on-year. Tractor sales surged by 35% in December, while gross GST collections reported a 6.2% rise in January. The manufacturing PMI reached 55.4, and industrial sectors like electricity generation and rail freight traffic also noted sequential gains. Bank credit growth rose to 14.6% by January's end, while the services PMI stood at 58.5.

External pressures, notably the US tariffs implemented in August 2025, had limited impact due to robust domestic demand and adjustments in tax policies. The report highlighted how these challenges were countered by domestic resilience, strategic tax shifts, and proactive government spending. Anticipated trade agreements with the US and EU are expected to better the goods export outlook. A revised GDP series using a 2022-23 baseline will be released by February 2026 to more accurately capture growth dynamics, including digital and informal economies.

The report projects that the Reserve Bank of India may extend its pause on monetary policy adjustments, emphasizing durable liquidity. On the foreign exchange front, UBS predicts the USD/INR may reach 94 by late 2026. The RBI's foreign exchange strategies are expected to maintain a floor against further rupee depreciation, with a significant rebound beyond 88-89 unlikely.