India’s Economy Poised for 6.5% Growth in FY26: Crisil Forecast

India’s economy is projected to grow at a steady 6.5% in fiscal 2026, driven by robust domestic demand despite global challenges such as geopolitical uncertainties and US-led trade actions, according to Crisil’s latest India Outlook report released on Thursday.

Key Growth Drivers

Crisil’s projection assumes a normal monsoon and stable commodity prices, with significant contributors including cooling food inflation, tax benefits announced in the Union Budget, and lower borrowing costs, all of which are expected to boost consumption. While economic growth is stabilizing at pre-pandemic levels, high-frequency Purchasing Managers Index (PMI) data indicates that India continues to lead among major global economies.

Crisil anticipates that India's manufacturing sector will expand at an average annual rate of 9% between FY25 and FY31, up from 6% in the pre-pandemic decade. Manufacturing’s share in GDP is expected to increase to 20% by FY31, supported by rising investments and efficiency gains. However, services will remain the primary growth driver, albeit at a slower pace.

Economic Resilience and External Challenges

“India’s resilience is being tested again. Over the past few years, we have built safe harbours against external shocks—healthy economic growth, a low current account deficit, manageable external public debt, and ample forex reserves—which provide substantial policy latitude,” said Amish Mehta, Managing Director & CEO of Crisil Ltd.

“So, while external uncertainties persist, consumption-driven rural and urban demand will be crucial for short-term growth, while long-term growth will be supported by sustained investments and efficiency gains,” Mehta added.

Inflation and Monetary Policy Outlook

Inflation softened in FY25 due to lower non-food inflation, though food prices remained high. Crisil expects food inflation to decline further in FY26, contributing to a reduction in overall inflation levels.

With fiscal consolidation and easing inflation, the Reserve Bank of India (RBI) is expected to reduce policy rates by 50-75 basis points in the next fiscal year. However, the pace of rate cuts by the US Federal Reserve and potential weather-related risks could influence the timing of RBI’s policy adjustments.

Crisil also forecasts a slight rise in India’s current account deficit (CAD) in FY26, as goods exports face headwinds from global trade restrictions and weak external demand. However, strong services exports and robust remittances are expected to cushion the impact.

“India has continued to widen its growth premium over advanced economies through infrastructure expansion and economic reforms. While healthy GDP growth, a low CAD, and sufficient forex reserves provide policy flexibility, they do not fully insulate the country from external shocks,” noted Dharmakirti Joshi, Chief Economist at Crisil Ltd.

Corporate Revenue and Profitability Trends

Crisil expects corporate India’s revenue growth to accelerate to 7-8% year-on-year in FY26, up from around 6% in FY25, nearing the decadal average of approximately 8%. The boost will be primarily driven by strong performance in consumption-related sectors.

“The reduction in taxes, as announced in the budget, will support private consumption, which accounts for over 55% of GDP, creating conditions for fresh investments,” the report stated.

Urban demand, particularly among middle-income households, is expected to rise, with notable growth in sectors such as automobiles. Crisil anticipates higher volume growth in two-wheelers compared to passenger cars, which primarily cater to high-income buyers.

Despite pricing pressures in commodity sectors, corporate profitability is set to improve, with EBITDA margins expected to rise by 50 basis points in FY26, reaching near decade-high levels.

Capital Expenditure and Emerging Sectors

Industrial capital expenditure (capex) is gaining momentum, supported by rising capacity utilization, strong corporate balance sheets, and the Production-Linked Incentive (PLI) scheme.

Crisil projects annual industrial capex to increase from ₹4.3 trillion (FY21-FY25) to ₹7.1 trillion by FY30. Emerging sectors such as electric vehicles, semiconductors, and electronics are expected to account for 23% of total capex between FY26 and FY30.

While India continues to bolster its manufacturing sector through investments in infrastructure, technology, skills, and market access under initiatives like ‘Make in India’ and the PLI scheme, scaling up and integrating into global value chains could face hurdles due to rising trade tensions.

Crisil cautioned that trade uncertainties and technology access challenges may hinder export growth, despite India’s strengthening domestic manufacturing base. However, with its structural economic resilience and ongoing policy reforms, India is well-positioned to navigate these challenges while maintaining stable economic growth.