Fitch Raises India’s FY26 Growth Forecast to 7.4% as Private Consumption Strengthens

Fitch Ratings has upgraded India’s FY26 growth outlook, projecting a stronger and more resilient economic expansion driven primarily by a surge in private consumption. The global rating agency lifted its forecast to 7.4 percent, up from its earlier estimate of 6.9 percent, citing robust real income growth, improved consumer sentiment, and the positive impact of recent Goods and Services Tax (GST) reforms.

The revision comes shortly after the release of India’s second-quarter GDP numbers, which recorded 8.2 percent growth—the fastest pace in six quarters—further reinforcing the underlying strength of domestic demand. Fitch noted that this Q2 performance has played a significant role in shaping its improved outlook.

Private Consumption at the Core of Growth

According to Fitch, private consumer spending remains the “main driver of growth,” supported by multiple favorable factors. These include:

• Strong real income dynamics, which have improved purchasing power

• Higher consumer sentiment, leading to increased spending

• Benefits from the implementation of GST reforms, which continue to improve efficiency and compliance

Fitch noted that this positive momentum in household consumption has created a stable foundation for India’s medium-term growth trajectory.

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Growth Outlook for FY27 and FY28

While FY26 is expected to deliver stronger expansion, Fitch anticipates a gradual easing over the next two fiscal years.

• FY27 Growth Estimate: 6.4 percent
  Fitch expects growth to moderate closer to its estimate of potential output. Domestic demand—particularly consumer spending—will continue to remain the primary driver.

  The agency expects public investment growth to soften, while private investment should pick up in the second half of FY27 as financial conditions become more accommodative.

• FY28 Growth Estimate: 6.2 percent
  The pace of expansion is projected to ease further as higher imports begin to offset slightly stronger domestic demand.

Fitch emphasized that despite the moderation, India’s growth levels remain supported by domestic fundamentals.

External Trade Risks Remain Elevated

Fitch highlighted external challenges, particularly regarding India’s trade exposure. The agency pointed out that India faces “one of the highest effective tariff rates” on its exports to the United States—around 35 percent.

According to Fitch, a trade agreement that lowers this tariff burden would significantly boost external demand, contributing positively to India’s export performance in the coming years. However, as of now, the external sector continues to pose risks to the outlook.

Inflation Set to Rise After a Sharp Decline

On the inflation front, Fitch projects a sharp drop in average inflation this fiscal year to 1.5 percent, before rising again to 4.4 percent in FY27.

The agency noted that India’s consumer inflation fell to 0.3 percent in October, but base effects will push inflation back above target by the end of 2026. It expects only a mild decline in price pressures in 2027.

Fitch added that a combination of base effects and demand conditions will likely keep inflation higher than the previous year, though still manageable.

RBI Nearing the End of Its Rate-Cut Cycle

With inflation declining and growth remaining strong, Fitch believes the Reserve Bank of India (RBI) has limited room to continue easing monetary policy.

Key expectations include:

• One additional rate cut in December, potentially lowering the repo rate to 5.25 percent

• This comes after 100 bps of rate cuts in 2025

• A prior reduction in the cash reserve ratio (CRR) from 4 percent to 3 percent

However, Fitch expects the RBI to pause the easing cycle after December, keeping rates steady for the next two years as core inflation edges higher and the economy continues to perform strongly.

Rupee Weakness Complicates Policy Decisions

Economists have cautioned that the rupee’s depreciation toward 90 per dollar has complicated the argument for an immediate rate cut. The stronger-than-expected second-quarter GDP growth has also raised concerns about inflationary pressures resurfacing.

The RBI’s Monetary Policy Committee is scheduled to announce its next policy decision on December 5, with market participants closely watching for any shift in tone.

Rupee Expected to Strengthen in 2025

Despite the recent pressure on the currency, Fitch expects the rupee to strengthen next year. Its revised projection pegs the rupee at around 87 per dollar in 2025, compared with its earlier estimate of 88.5.

This upgraded forecast is based on expectations of easing financial conditions and a more stable domestic macroeconomic environment.

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