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Global investment bank Goldman Sachs expects India's economic growth to strengthen in 2026, driven by easing financial conditions, domestic regulatory relaxation, and moderation in external headwinds.
In its latest report titled "Deregulation Dividend for the Banking System", the firm said, "We expect 2026 to mark an improving growth backdrop on the external front as we expect tariffs to ultimately settle at lower levels. We expect an additional policy rate cut before year-end, and the recent GST simplification signals that peak fiscal consolidation is behind us. We expect this, along with domestic regulatory easing, to foster a gradual recovery in credit demand." The report noted that while the Reserve Bank of India's (RBIs) recent moves would ease capital and liquidity conditions for banks, the overall pace of lending recovery would depend on demand momentum and external factors. The report observed, "The RBI's recent measures should ease supply-side credit conditions, but the extent of incremental lending will hinge on demand dynamics in the broader economy. External headwinds continue to weigh on India's outlook, including tighter US immigration costs for H-1B visas that affect Indian IT services, in addition to elevated US tariff (50 per cent) on Indian goods; these factors could temper credit demand alongside broader macro uncertainty." At the same time, Goldman Sachs acknowledged that the domestic policy environment is turning supportive. "While supply-side conditions are improving, external headwinds - such as elevated US tariffs on Indian exports and higher US visa costs - could dampen corporate borrowing appetite amidst elevated uncertainty. However, in our baseline, we expect an improving growth backdrop in 2026, as: a) peak fiscal consolidation is likely past, b) we expect tariffs to ultimately settle lower, and c) we forecast an additional repo rate cut before year-end." The report highlighted that easing liquidity, lower capital requirements for banks, and upcoming regulatory reforms could stimulate lending. Goldman Sachs expects the RBI's monetary easing and deregulation drive to gradually improve credit growth, with asset quality risks receding and financial sector earnings set to rebound by 2026. (ANI)
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