Fitch lifts FY26 growth forecast to 7.4% on stronger consumer demand

Fitch raises India's FY26 growth forecast to 7.4%, citing strong consumer demand and GST-driven sentiment, while expecting slower growth ahead, limited rupee fall and one more RBI rate cut

Fitch Ratings raised its growth forecast for the current financial year to 7.4 per cent from its earlier 6.9 per cent, citing increased consumer spending and improved consumer sentiment following goods and services tax (GST) reforms.

 

“Private consumer spending is the main driver of growth this year, supported by strong real income dynamics, increased consumer sentiment, and the impact of recently implemented goods and services tax reforms,” Fitch Ratings stated in its latest Global Economic Outlook on Thursday.

 

The upward revision by the global credit rating agency comes days after the economy expanded at its fastest pace in six quarters, growing 8.2 per cent during the July-September (Q2) period, outstripping both official and private forecasts by a significant margin. 

The outlook further noted that the gap between nominal and real GDP narrowed further in Q2, with the GDP deflator just 0.5 per cent higher compared with the year earlier and growth is expected to ease over the remainder of the financial year.

 

For FY27, Fitch expects growth to ease to 6.4 per cent, closer to its estimate of potential, with domestic demand—particularly consumer spending—remaining the key driver. Public investment growth is likely to moderate, while private investment should pick up in the second half of FY27 as financial conditions loosen, it said.

 

Meanwhile, the rating agency expects retail inflation to average 1.5 per cent this financial year before rising to 4.4 per cent in FY27.

 

“Base effects will drive inflation above target by end-2026. We expect only a slight decline in 2027,” it said.

 

The agency said falling inflation should allow the Reserve Bank of India (RBI) room for one more rate cut in December to 5.25 per cent, following 100 basis points (bps) of cuts in 2025. With core inflation edging up and growth expected to remain strong, Fitch believes the RBI is at the end of its easing cycle and will keep rates steady over the next two years.

 

Highlighting external risks, the outlook noted that India faces one of the highest effective tariff rates on its exports to the US at around 35 per cent.

 

A trade agreement that lowers this burden would “boost external demand,” the agency said.

 

On the depreciation of Indian rupee against the dollar, the rating agency expects the slide in rupee to be limited, projecting the currency to strengthen to 87 per dollar in the coming year.

 

It notes that the rupee may settle at 87 by end-2026, compared with its forecast of 88.5 for end-2025. Fitch sees the currency holding at similar levels through 2027.

 

This projection comes a day after the rupee hit a record low of 90.29 per dollar before closing at 90.19 on Wednesday.