India’s economy is projected to grow at 6.4 per cent in 2026 and 6.6 per cent in 2027, according to the Economic and Social Survey of Asia and the Pacific 2026 released by the United Nations Economic and Social Commission for Asia and the Pacific on Monday. The projections come after India recorded growth of 7.4 per cent in 2025 — the fastest in the region — before a visible moderation in the second half of the year as US tariffs began to bite.
The report confirms India’s position as the primary driver of South and South-West Asian economic growth, even as the UN flags meaningful headwinds from trade tensions, declining FDI flows to the region and the new US remittance tax that threatens one of India’s most significant external income streams.
What Drove India’s 7.4% Growth in 2025
The UN’s characterisation of India’s 2025 performance is instructive. The report attributes the 7.4 per cent growth to robust consumption — particularly from the rural economy — alongside goods and services tax rate cuts and export frontloading ahead of US tariffs. The rural consumption angle reflects the impact of normal monsoons, strong agricultural output and government rural transfer programmes on household spending. The GST rate cuts provided a consumer demand boost in the first half of the year. Export frontloading — where Indian exporters rushed shipments to the United States before 50 per cent tariffs came into effect in August 2025 — temporarily inflated export figures before the tariff wall landed.
The moderation that followed was sharp and direct. Exports to the United States declined by 25 per cent in the second half of 2025 following the introduction of the 50 per cent tariffs in August, pulling overall growth momentum lower through the back half of the year. The services sector remained a key growth driver throughout, providing the structural floor that prevented a sharper deceleration.
The 2026 and 2027 Projections — Why the Slowdown From 7.4%
The UN’s 6.4 per cent projection for 2026 represents a meaningful step-down from 2025’s 7.4 per cent, reflecting three compounding headwinds that the report identifies as key risks to India’s near-term trajectory.
The first is the sustained impact of US tariffs on India’s goods exports. The 50 per cent tariff wall introduced in August 2025 will weigh on export volumes through the entirety of 2026 without the one-time boost of frontloading that helped 2025 numbers. The second is the decline in FDI flows to the Asia-Pacific region — after a 0.6 per cent increase in 2024, FDI to the region declined 2 per cent in 2025 even as global flows rose 14 per cent, reflecting the diversion of investment away from geopolitically uncertain environments. The third is the Iran war’s impact on India’s energy import bill, rupee stability and business confidence — a factor the UN report would have incorporated given the war’s February 28 start.
India’s inflation is projected at 4.4 per cent in 2026 and 4.3 per cent in 2027 — within the RBI’s 2-6 per cent tolerance band but above the 4 per cent midpoint target, leaving the central bank with limited room to cut aggressively even as growth moderates.
India as the Region’s Largest Greenfield FDI Destination
Despite the regional FDI decline, India retained its position as the largest recipient of greenfield FDI in the Asia-Pacific. The UN report states that in the first three quarters of 2025, India attracted USD 50 billion in announced greenfield investments — significantly ahead of Australia at USD 30 billion, South Korea at USD 25 billion and Kazakhstan at USD 21 billion. This greenfield leadership reflects India’s attractiveness for manufacturing relocation, data centre investment and renewable energy projects even as overall FDI to the region declined.
The Remittance Tax Risk — A USD 137 Billion Question
The UN report flags one of the most specific and quantifiable risks to India’s economic outlook in its discussion of remittances. India is the world’s largest remittance recipient, having received USD 137 billion in 2024 — a figure that dwarfs the remittance receipts of every other country on earth and represents a significant component of household income, consumption and foreign exchange inflows.
The United States has levied a 1 per cent tax on all remittances since January 2026. The UN explicitly states that India could face a sizeable loss as a result. Approximately 40 per cent of remittance transfers received in India are used for essential spending including medical expenses — meaning the households most affected by any reduction in remittance flows are among the most economically vulnerable. If the 1 per cent US remittance tax reduces the volume of transfers even modestly, the consumption impact at the household level in states like Kerala, Tamil Nadu, Uttar Pradesh and Bihar — which have significant overseas worker populations in the United States — will be visible in consumption data within a few quarters.
The Green Jobs and Structural Transition Context
The report also noted global green job creation of approximately 0.8 million annually between 2012 and 2024, at 7 per cent annual growth, with around 16.6 million green jobs globally. India’s greenfield FDI leadership is partly a function of renewable energy investment, and the acceleration of India’s solar and wind capacity buildout — itself relevant to the Iran war’s energy security lesson — positions the country to capture a disproportionate share of green job creation in the Asia-Pacific over the projection period.
The Bottom Line
At 6.4 per cent in 2026 and 6.6 per cent in 2027, India remains by a wide margin the fastest-growing large economy in the world and the primary engine of South Asian growth. The step-down from 7.4 per cent in 2025 is real but reflects one-off factors — tariff frontloading, rural consumption stimulus — unwinding rather than structural deterioration. The risks are also real: US tariffs on goods exports, declining regional FDI, Iran war energy disruption and the remittance tax are all live headwinds. The services sector, rural consumption resilience and India’s greenfield investment position are the structural strengths that underpin the UN’s confidence in sustained above-6 per cent growth through 2027.
Disclaimer: This article is based on the UN ESCAP Economic and Social Survey of Asia and the Pacific 2026. Projections are subject to revision based on evolving macroeconomic conditions.