Fitch Retains India’s FY26 Growth Forecast at 6.5%

India’s Economic Growth Resilient Amid Rising Global Risks, Says Fitch

Global ratings agency Fitch Ratings has maintained its forecast for India’s economic growth at 6.5% for FY26, citing strong domestic demand, high capacity utilization, and infrastructure expansion as key growth drivers. The agency also raised its FY27 growth estimate to 6.3% from 6.2%, reflecting sustained momentum despite rising global uncertainties.

The agency’s latest report, released on March 19, 2025, highlights India’s ability to withstand external shocks, particularly U.S. tariff actions, due to its low reliance on external demand.

Key Takeaways from Fitch’s India Growth Outlook

• FY26 GDP growth forecast retained at 6.5%
• FY27 growth outlook revised upward to 6.3% from 6.2%
• India’s inflation forecast remains unchanged at 4% for FY26
• Inflation for FY27 revised higher to 4.3% from 4%
• Expectations of further RBI rate cuts, with repo rate seen at 5.75% by FY26-end

Fitch’s projections for India’s growth outlook are higher than the OECD forecast of 6.4% but lower than the Reserve Bank of India’s (RBI) estimate of 6.7% for FY26.

India’s Economic Momentum Remains Strong

Despite a temporary slowdown, India’s economic activity remains robust, with Fitch expressing confidence in a continued expansion. The economy grew 6.2% in Q3 FY24, rebounding from a two-year low of 5.6% in the July-September quarter.

“We do not think that this soft patch will translate into a prolonged slump in economic activity. Consumer and business confidence remain strong, a push for infrastructure expansion supports investment, capacity utilization remains high, and exports have picked up sharply since October,” the agency said.

For the current fiscal year (FY25), Fitch projects India’s GDP to grow by 6.4%, reinforcing its optimism about the country’s economic resilience.

Inflation and Interest Rate Projections

Fitch expects India’s inflation to remain at 4% in FY26, aligning with the RBI’s inflation target. However, for FY27, inflation is projected at 4.3%, reflecting potential supply-side pressures.

On the monetary policy front, Fitch anticipates more rate cuts as inflation gradually moves towards the RBI’s 4% target.

• RBI’s repo rate is expected to be 5.75% by December 2025, lower than the previous estimate of 6.25%.
• The central bank began easing monetary policy in February 2025, implementing a 25 basis points (bps) rate cut, bringing the repo rate down to 6.25%.
• Two more rate cuts are expected in April and June, pushing the repo rate to 5.75% by FY26-end.
• No further rate cuts are projected beyond FY27.

Global Growth Downgraded Amid Rising Trade Tensions

While India’s economic prospects remain strong, global economic uncertainty is on the rise. Fitch revised its 2025 global growth forecast downward to 2.3%, a 0.3 percentage point decline from previous estimates.

The agency attributes this slowdown to rising trade barriers, particularly the U.S.’s protectionist policies.

Impact of U.S. Tariffs on Global Trade and Growth

Fitch’s report highlights the increasing risk of trade disruptions due to higher U.S. tariffs on key trading partners.

• A 15% Effective Tariff Rate (ETR) will be imposed on Europe, Canada, Mexico, and others in 2025.
• China will face a 35% ETR, pushing the overall U.S. tariff rate to 18% in 2025, the highest in 90 years.
• By 2026, tariffs are expected to lower GDP growth by approximately 1 percentage point in the U.S., China, and Europe.

The U.S. has already implemented tariffs on steel and aluminum products, while also imposing blanket tariffs on imports from China, Canada, and Mexico.

India’s Insulation from Global Trade Wars

India’s low dependence on exports shields it from the impact of global trade tensions, according to Fitch. Unlike economies that rely heavily on external demand, India’s economic growth is primarily driven by domestic consumption and investment, making it less vulnerable to tariff-related disruptions.

However, analysts caution that while India is relatively insulated from global trade wars, potential supply chain disruptions, commodity price volatility, and geopolitical uncertainties could pose risks to inflation and economic stability.