Ind-Ra cuts India's FY26 GDP growth forecast to 6.3% on weak outlook

India Ratings & Research (Ind-Ra) on Wednesday trimmed India's growth projection for the current fiscal to 6.3 per cent, citing uncertainties around US tariffs and weak investment climate.

Ind-Ra expects GDP in FY26 to grow 6.3 per cent y-o-y, 30bp lower than its earlier forecast of 6.6 per cent made in December 2024. The economy is facing both headwinds and tailwinds, it said in its mid-year economic outlook.

"Major headwinds are: i) uncertain global scenario from the unilateral tariff hikes by the US for all countries and ii) weaker-than-expected investment climate. The major tailwinds are: i) monetary easing, ii) faster-than-expected inflation decline, and iii) likely above-normal rainfall in 2025", said Devendra Kumar Pant, Chief Economist and Head Public Finance, Ind-Ra.

The Indian economy had grown at 6.5 per cent in 2024-25 (April 2024 to March 2025)  Ind-Ra's projections for FY26 are lower than the 6.5 per cent GDP growth projected by the RBI and the Asian Development Bank (ADB). 

The domestic rating agency expects average retail inflation at 3 per cent and exchange rate at 86.9 to a dollar in the current fiscal.

Low inflation, monetary easing and so far favourable monsoons have brightened the scope for a continued economic recovery in FY26, and they are likely to minimise the impact of strong headwinds emanating from the uncertain global scenario.

"While low inflation augurs well for consumption demand, monetary easing is likely to ease pressure on loan repayments, and better monsoon is likely to translate into brighter agriculture prospects, thus supporting rural demand. However, the combined impact of tailwinds is unlikely to fully alleviate the adverse impact of the strong headwinds", said Paras Jasrai, Economist & Associate Director, Ind-Ra.

Ind-Ra said major growth drivers were expected to be monetary easing and capex. The pace of monetary easing in 2025 has been faster than our expectations. However, the tariff hikes by the US have increased the global economic uncertainty, leading to slower growth for both global demand and trade.

"This has led to investors adopting a wait and watch mode before taking decisions on greenfield expansion," Ind-Ra said.