India’s GDP Growth to Remain Strong at 6.5% in FY26, Says Fitch Ratings

Fitch Ratings has retained its GDP growth forecast for India at 6.5% for FY26 while slightly revising its FY27 projection upwards by 10 basis points to 6.3%, according to its latest Global Economic Outlook report released in March.

The agency highlighted that despite potential risks from aggressive US trade policies, India remains relatively insulated due to its low reliance on external demand.

The report noted that the recent increase in tax-free income allowances and revised tax brackets introduced in the Union Budget will support consumer spending growth, although at a slower pace compared to this year. Fitch assessed the Budget as broadly neutral for economic growth but expects a rise in capital spending over the next two financial years.

"Business confidence remains high, and lending surveys indicate continued double-digit growth in bank lending to the private sector. These factors, coupled with a reduction in the cost of capital, support our expectation of an uptick in capital expenditure in FY26 and FY27," the report stated.

India’s Economic Survey has projected GDP growth for FY26 in the range of 6.3% to 6.8%, while official estimates suggest the current fiscal year will close with 6.5% growth. Real GDP growth had slowed to 5.4% in the July-September 2024 quarter before rebounding to 6.2% in the following quarter.

Fitch Ratings also pointed out that consumer confidence has declined in recent months, and vehicle sales have seen a significant slowdown. However, it noted that lower inflation would boost real incomes, while labour market indicators, based on official data and Purchasing Managers' Index (PMI) survey data, suggest steady employment growth and increased workforce participation.

The report further stated that net exports have contributed positively to GDP growth this year, benefiting from strong export performance and declining imports. However, this trend is expected to normalize, with net exports’ contribution to growth becoming broadly neutral in FY26 and FY27.

Fitch also revised its interest rate outlook, predicting two more policy rate cuts this year and lowering its forecast for the repo rate to 5.75% by December 2025. Earlier in February, the Reserve Bank of India (RBI) had already cut the repo rate by 25 basis points to 6.25%.

Looking at inflation trends, Fitch expects food price dynamics to facilitate a gradual decline in the headline inflation rate to 4% by the end of 2025, followed by a slight rise to 4.3% by December 2026.

Last week, Moody’s Ratings also revised India’s growth forecast for the next financial year to 6.5%, up from 6.3% for the current year, citing higher government capital expenditure and a boost in consumption driven by tax cuts and lower interest rates.

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