Navigating India’s long-term growth story for professional investors
12 JUN, 2026
By Renu Pothen
India remains the world's fastest-growing economy and is a rising global economic power, making it an exciting investment opportunity in diversified global portfolios. The World Bank’s India Development Update (April 2026) showed that, despite global trade tensions, India's growth accelerated to 7.6% in FY26, from 7.1% in FY25. The report further adds that the resilient growth momentum reflects robust domestic demand, supported by favorable factors such as low inflation, income tax, and Goods and Services (GST) cuts, and more accommodative monetary policies. The IMF’s World Economic Outlook (April 2026) shows that India is the sixth-largest economy with a GDP of USD 4.15 trillion. However, when we consider GDP based on purchasing power parity (PPP), India is the third-largest economy, behind China and the United States. EY, in its report "India@100:Realizing the potential of a US$26 trillion economy", has projected that if the country maintains a stable yet moderate growth rate averaging 6% per annum, India would become a USD 26 trillion economy by 2047-48, with per capita income exceeding USD 15,000.
In the last few years, India has been negotiating Free Trade Agreements (FTAs), in this way strengthening its position in the global trade environment. In January 2026, the India-EU FTA, which was called the “Mother of All Deals,” was signed, creating the world's largest free trade zone. According to the European Commission, the EU and India already trade over €180 billion worth of goods and services, which supports around 800,000 jobs in the EU. Along with this, the EU’s FDI in India has increased from €105.1 billion in 2021 to €132.8 billion in 2024, and 6,000 European companies are present in India. The deal not only removes trade barriers but also opens up enormous opportunities across different sectors.
Factors driving India’s resilient economic growth
The economy has been resilient amid global uncertainties, due to strong macroeconomic fundamentals along with the ongoing structural reforms. The momentum in the country's economic growth trajectory has been supported by several factors, all of which play a crucial role in making India an interesting long-term story in investor portfolios.
Favourable demographics
India is not only the most populous country in the world but also has the largest youth population. The country's current demographic profile is a stark contrast to the aging population in many developed countries. According to UNFPA’s World Population Dashboard for India (2025), 68% of the population is between 15 and 64 years, while 7% is 65 years or older. The potential of this young demographic is highlighted in a McKinsey January 2026 report titled "India from ambition to action," which states that the country can become the talent factory for the world.The report also notes that India currently accounts for 16% of the global AI talent pool and already turns out five times as many STEM graduates as the United States. To leverage this potential,policymakers have been emphasizing skill development so that this young working-age population can effectively be part of the global workforce. One of the major initiatives in this regard is the Skill India Mission, which aims at skilling, re-skilling, and up-skilling through various training programs, including industry partnerships. Additionally, initiatives such as Startup India promote a strong entrepreneurship ecosystem in which young people drive technological advancement and create more jobs. This, in turn, helps achieve inclusive growth by targeting entrepreneurship beyond the major cities.
Domestic demand-driven economy
India’s domestic consumption accounts for 60% of GDP and has been instrumental in sustaining the country's economic growth despite frequent global headwinds. India has seen a massive increase in its middle class, and with their rising disposable income, it is becoming a large consumer market that both domestic and international businesses cannot afford to overlook. A recent article by the World Data Lab in the World Economic Forum projects that over the next 15 years, 93% of the growth in India's urban consumer class will occur outside the five largest cities. By 2036, it is expected that India's middle class and affluent consumers' share in overall spending will increase to 93%, up from 80% in 2026. Additionally, a Brookings report titled “China and India: The future of the global consumer market” forecasts that by 2030, India will have 357 million young consumers under the age of 30 years, making it the largest young consumer market in the world. To capitalize on this trend, recent income tax reforms have aimed to increase the spending capacity of the middle class, which has the potential to stimulate economic activity. These reform measures will not only boost consumer spending but are also expected to spur investment in financial assets, thereby deepening the domestic capital market. Finally, the rapid expansion of the middle class and their increased consumption will drive domestic businesses to innovate aggressively around the trends and themes that resonate with young India.
Infrastructure Push and the integration into the Global Supply Chain
Infrastructure development has been a major focus for policymakers, as seen in the Union Budget 2026-27, wherein public capital expenditure has been increased to ~USD 135 billion in FY27. Over the years, infrastructure financing has gained traction, and the government has been prioritizing public-private partnerships, as budget allocations alone will not be sufficient for large-scale projects. The Economic Survey 2025-26 has highlighted that, according to the World Bank’s Private Participation in Infrastructure (PPI) Report 2024, India has been consistently ranked among the top five countries globally in terms of private investment in infrastructure among low- and middle-income economies. India is also the largest recipient of PPI investment in South Asia, accounting for over 90% of the region’s total private infrastructure investment. The World Bank report titled "Towards Resilient and Prosperous Cities in India" has estimated that, on a conservative basis, India would require USD 2.4 trillion of investments by 2050 to build a resilient and low-carbon urban infrastructure. This huge infrastructure requirement calls for greater private-sector participation, innovative financing mechanisms, and strategic planning.
Alongside this infrastructure push, India’s manufacturing sector has been playing an instrumental role in integrating into global supply chains, and this has been supported by policy measures such as the Production Linked Incentive (PLI) Scheme, the National Manufacturing Mission, the National Logistics Policy, infrastructure development across several verticals, and GST 2.0 reforms. The PLI Scheme covers 14 major sectors and provides financial incentives that are directly mapped to incremental production and sales. The National Mission on Manufacturing is the long-term industrial roadmap targeting a rise in the share of manufacturing in the GDP to 25% by 2035, the creation of 143 million jobs, and the expansion of merchandise exports to USD 1.2 trillion through deeper global value chain integration. The core of this mission is sustainability, as it prioritizes clean-tech manufacturing, including solar PV modules and EV batteries as well as green hydrogen and wind turbines. The structured policy frameworks, along with targeted reform initiatives, have led to a significant increase in FDI. The data from the Ministry of Commerce & Industry shows that total FDI into India stood at USD 748.78 billion during 2014-25, as against USD 308.38 billion during 2003–14. On the other hand, manufacturing FDI increased from USD 16.12 billion in FY 2023–24 to USD 19.04 billion in FY 2024-25.
Digital transformation
The digitalization of the economy has been a game-changer for the country’s sustained and inclusive growth momentum. According to ICRIER’s State of India’s Digital Economy report, 2026, India is now the fifth most digitalised country in the world. Policymakers in India project that by 2030, the digital economy will contribute to one-fifth of the overall economy, thus exceeding growth in traditional sectors. An article published in the World Economic Forum titled "Security-by-design lessons from India's digital public infrastructure journey" states that the world’s biggest biometric ID system, Aadhaar, now covers 1.3 billion people, reducing identity verification costs from USD 10-20 to USD 0.27 per transaction. The IMF last year stated that India’s Unified Payments Interface (UPI) has become the largest real-time payment system globally by volume, processing more than 19 billion transactions every month. The recent Budget also announced forward-looking reforms in areas such as AI, data centers, semiconductors, and the orange economy, which means that there is a significant shift towards the digital landscape. India's digital stack currently includes not only digital identity and financial inclusion, but also several segments, such as real-time payments, citizen service delivery, health and nutrition, education and skilling, and governance capacity and coordination. Additionally, India has also signed MoUs with 24 countries for cooperation on Digital Public Infrastructure (DPI). In June this year, Blackstone-backed AirTrunk announced an investment of USD 30 billion by 2030 to develop 5 GW of data centre capacity, making it among the largest investments in digital infrastructure. The budget announcements, along with massive investments in digital infrastructure, will not just create more employment opportunities but also foster economic growth and improve the overall digital ecosystem
Conclusion
India’s growth story is definitely compelling and intact from a long-term perspective, but there are certain short-term risks that professional investors must monitor. Geopolitical tensions are an important concern, as they can lead to higher oil prices. Since India imports 88% of its oil requirements, a global oil price shock can negatively impact macroeconomic indicators, widen trade deficits, and lead to currency fluctuations that can impede short-term economic stability. While investing in India, one concern for portfolio managers is that the market is still trading at a premium to other emerging markets, despite the recent correction in valuations. As of May 29,2026, the 12-month forward P/E ratio of the MSCI India Index stands at 20.06 times, higher than the MSCI Emerging Markets P/E ratio of 12.16 times. This premium valuation is reflecting a strong long-term macroeconomic outlook and expectations of healthy, double-digit corporate earnings growth.
