Fitch Raises India's FY26 GDP Forecast to 6.9%, Domestic Demand to Drive Growth

Fitch Ratings on Wednesday raised India's GDP growth forecast to 6.9% for current fiscal year, from 6.5% earlier, citing strong June quarter growth and domestic consumption-led demand.

Fitch is the first global rating agency to have upped India's GDP growth estimates for current fiscal year after the string of downward revisions by various agencies earlier this year due to trade and tariff uncertainties.

In its Global Economic Outlook (GEO)-September, Fitch said the pace of economic activity accelerated sharply between the March and June quarters of current fiscal year. The real GDP growth in April-June rose to 7.8% year-on-year, from 7.4% in January-March.

In its June GEO report, Fitch had forecast a 6.7% growth for the April-June quarter.

"On the back of the 2Q25 (April-June) outturn, Fitch has revised up its forecast for the fiscal year ending March 2026 (FY26) to 6.9% from 6.5% in the June GEO," it said.

Fitch said the trade tensions with the US have increased in recent months, with the US imposing an additional 25% tariff on imports from India. Effective August 27, Indian goods in US attract a 50% duty.

"We expect this will eventually be negotiated lower, but the uncertainty around trade relations will dampen business sentiment and potentially investment. The government has adopted reforms to the Goods and Services Tax to be effective from September 22, which should modestly boost consumer spending over the remainder of this and the next fiscal years," Fitch said.

Domestic demand will be the key driver of growth, as strong real income dynamics support consumer spending and looser financial conditions should feed through to investment, Fitch added.

However, Fitch expects growth to slow in the second half (October-March) of the financial year.

For the next fiscal year (2026-27), Fitch projected growth at 6.3%, which would edge down to 6.2% in FY28.

Fitch's FY26 GDP growth estimate for India is highest among other comparable agencies. Finance Ministry's Economic Survey had projected India's growth to be between 6.3-6.8% in current fiscal year.

The Reserve Bank of India, the Asian Development Bank (ADB), and S&P Global Ratings projected India's GDP to expand 6.5% in FY26.

Moody's Ratings estimates GDP to grow 6.3% in 2025 calendar year.

The International Monetary Fund (IMF) and World Bank estimates GDP growth at 6.4% and 6.3%, respectively.

Fitch said it expects food price pressures to remain weak, in the context of above-average monsoon rainfall and high food stockpiles, so that inflation will only pick up to 3.2% by end-2025 and 4.1% by end-2026.

"We still expect the RBI to cut rates by 25bps towards the end of the year, as it assesses the impact of the policy loosening already implemented, and that rates will stay there until end-2026. We expect the RBI to start raising rates in 2027," Fitch added.