- India-Pakistan hostilities have ceased. A broader conflict resolution mechanism is yet to be ironed.
- India-UK FTA was signed into effect.
- India is expected to benefit from trade diversion flows in midst of tariff pivots.
- Investment intentions are strong, besides a likely conclusion of the bilateral agreement with the US
- A rejig in domestic drivers is likely to see growth average 6.1% yoy in FY26.
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We see potential tailwinds from recent developments, including a de-escalation in tensions between India and Pakistan, trade agreement with the UK and likely thaw in trade/ tariff discussions with the US. These catalysts will not only bode well for foreign investment flows, but also growth prospects further out.
In midst of tariff face-off, India is expected to benefit from trade diversion flows
Our view highlighted in India: Tariffs and RBI’s three imperatives remains unchanged, which is that India is better placed than its peers on the tariff front. Onshore markets had come around the view that despite the US tariff overhang, India might fare well in the region not only because of its relatively smaller exposure to US exports (as % of GDP) and smaller indicative tariff rate (as compared to competitor ASEAN countries), but also owing to affirmative signals from the US administration that a bilateral agreement between the two countries was in the offing.
India-UK pen a free trade agreement
In a long-awaited move, India successfully concluded a free trade agreement with the UK, after three years of discussions. Negotiations revolved around three aspects – free trade deal, bilateral investment treaty and a social security part called Double Contribution Convention Agreement (this prevents double contribution to social security funds by Indian professionals working for limited periods in Britain) – of which two have been concluded. The deal might kick in after a year.
Cyclical growth trend to stay close to 6% in FY26
India’s trend growth continues to gain traction, strengthened by catalysts like investments into physical infrastructure, emphasis on improving human capital, streamlining direct subsidy transfers to beneficiaries, productivity gains from digitalisation, widening footprint in high value-added sectors including semiconductors, and expanding presence in global value chains.
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