India’s rare ‘Goldilocks’ scenario—marked by high growth and low inflation—is expected to extend into 2026, though with some moderation, according to Samiran Chakraborty, Chief Economist at Citi India. Speaking to CNBC TV18 for the Outlook 2026 series, Chakraborty said the ideal mix of 7%+ GDP growth and sub-4% inflation that defined 2025 may continue, but growth may cool slightly while inflation edges higher.
Growth to Ease as 2025 Stimulus Fades
Chakraborty noted that economic expansion in 2026 could be “a tad weaker” as the effects of substantial fiscal and monetary stimulus introduced in 2025 begin to taper off.
On inflation, he expects a modest uptick due to base effects and mean reversion, but not enough to force any RBI policy tightening.
Why 2025 Inflation Fell Sharply
India’s inflation in 2025 shocked economists, dropping from initial forecasts of 3.8% to just 2%. Chakraborty attributed the steep 180 bps fall to a series of unusual, one-off factors:
- 100 bps from lower vegetable prices
- 40 bps from declines in other food categories
- 40 bps from lower core inflation, mainly due to a GST cut
He cautioned that such “lucky” factors—like benign vegetable prices and deflationary forces from China—may not repeat in 2026. A key debate, he said, will be whether persistently low core inflation reflects strong supply-side improvements or weak demand.
Rupee Weakness May Reverse in 2026
The rupee’s depreciation in 2025, despite strong GDP growth, was another anomaly. Chakraborty highlighted that India is set to record two consecutive years of Balance of Payments (BOP) deficit—a first since 1991.
This BOP deficit, he said, outweighed traditional valuation factors like inflation differentials and drove the currency weaker.
However, he expects a shift ahead:
- India’s BOP could move into surplus in Q1 2026 (Jan–March)
- Capital inflows may return
- The RBI may be able to set a firm floor for the rupee
Citi forecasts the rupee at 91 over the next 9–12 months, signalling a move toward a more stable currency equilibrium next year.
