India Economy Growth: Will it become 3rd-largest by 2028?
India is expected to grow at about 6.5% year-on-year (YoY) between FY28 and FY30, making it the world’s third-largest economy by 2028 and the third-largest consumer market by 2026, according to UBS.
Global growth is expected to slightly decelerate to 3.1% in 2026 from 3.2% in 2025, before rising to 3.3% in 2028. Despite this positive macroeconomic outlook, UBS maintains an underweight stance on Indian equities, citing expensive valuations relative to company fundamentals.
While retail investment continues to support the market, UBS highlighted potential pressures from foreign investor outflows and increasing corporate IPO and capital-raising activity. The report notes that India currently lacks significant direct beneficiaries of artificial intelligence (AI) compared with larger markets. UBS prefers sectors such as banking and consumer staples for investments in India.
Comparatively, peers like Goldman Sachs and Morgan Stanley hold more bullish views on Indian equities. Goldman Sachs has upgraded Indian equities to “overweight” with a Nifty target of 29,000, while Morgan Stanley projects the Sensex could reach 100,000 by June 2026. MSCI India has increased 3.9% year-to-date (YTD) but underperforms emerging markets by 33.6%, trading at a 48% premium on a 12-month forward PE basis relative to EM.
India’s Growth and Consumer Market
UBS forecasts India’s real GDP growth at 6.4% YoY in FY27 and 6.5% in FY28, making it the fastest-growing economy in the Asia Pacific region in 2027. Household consumption in India has nearly doubled over the past decade to $2.4 trillion in 2024, growing at a 7.9% compound annual growth rate (CAGR), exceeding growth rates in China, the US, and Germany. Estimates suggest India will become the world’s third-largest consumer market by 2026.
Global Comparisons
The US GDP growth is expected to decline from 1.9% in 2025 to 1.7% in 2026, rebounding to 1.9% in 2027. China’s real GDP growth is likely to slow to 4.5% in 2026 from 4.9% in 2025, primarily due to a lower contribution from net exports. Alongside growth prospects, global factors such as the U.S. government shutdown can influence gold prices and overall market sentiment, indirectly shaping India’s economic outlook.
Risks to Growth
UBS identifies two main risks to India’s growth forecast:
- Persistence of a 50% trade tariff, which could reduce GDP growth by approximately 50 basis points (bps) in FY27 and negatively impact employment, consumption, and investment. or more details on this, see US tariffs’ impact on the Indian economy.
- A 25% tax on payments by US companies to foreign outsourcing services, potentially lowering growth by around 90 bps in FY27.
Inflation and Monetary Policy
Consumer price inflation (CPI) is projected to rise from 2.4% YoY in FY26 to 4.3% in FY27, slightly below the Reserve Bank of India’s (RBI) 4.5% forecast. UBS anticipates a 25-basis-point rate cut by the RBI in the remaining months of FY26, followed by a pause in FY27.
