Fitch keeps India's FY26 GDP forecast at 6.5%, ups FY27 projection to 6.3%

The rating agency expects two further cuts in the policy rate this calendar year, revised downwards to 5.75 per cent by December 2025

Fitch Ratings has kept India’s gross domestic product (GDP) growth forecast for FY26 unchanged at 6.5 per cent and revised upwards its FY27 growth projection by 10 basis points to 6.3 per cent, according to its March Global Economic Outlook report. The report noted that while more aggressive-than-expected US trade policies pose a risk to its forecast, India is somewhat insulated due to its low reliance on external demand.

 

The latest Global Economic Outlook report stated that the increase in tax-free income allowances and revised tax brackets in the Budget will raise post-tax incomes and support consumer spending growth, albeit at a slower rate than this year.

 

While assessing the Budget as broadly neutral for growth, Fitch Ratings said it expects a pickup in capital spending over the next two financial years.

 

“Business confidence remains high, and lending surveys point to continued double-digit growth in bank lending to the private sector… These factors—together with a reduction in the cost of capital—underpin our expectation of a pickup in capital spending for FY26 and FY27,” the report stated.

 

The Economic Survey has projected GDP growth for FY26 at 6.3–6.8 per cent. As per official estimates, GDP growth in the current financial year is expected to be 6.5 per cent.

 

India’s real GDP growth slowed to 5.4 per cent in the July–September 2024 quarter before rebounding to 6.2 per cent in the following quarter.

 

Fitch Ratings noted that consumer confidence has edged down in recent months, and vehicle sales have eased significantly.

 

The report highlighted that lower inflation will boost real incomes, while labour market indicators—based on both official data and Purchasing Managers' Index (PMI) survey data—suggest steady employment growth and increased participation.

 

“Net exports have supported GDP growth this year due to a combination of strong export growth and falling imports. We expect this to normalise so that net exports’ contribution to growth will be broadly neutral over FY26 and FY27,” Fitch Ratings said.

 

The rating agency expects two more policy rate cuts this year, revising the forecast downwards to 5.75 per cent by December 2025. In early February, the Reserve Bank of India (RBI) announced a 25 basis points cut in the repo rate to 6.25 per cent.

 

“Food price dynamics in the coming months will enable a gradual decline in the headline inflation rate to 4 per cent by end-2025, followed by a mild increase to 4.3 per cent by December 2026,” the report said.

 

Last week, Moody’s Ratings revised India’s economic growth forecast for the next financial year to 6.5 per cent, up from 6.3 per cent this year, citing higher government capital expenditure and a consumption boost from tax cuts and interest rate reductions.