Fitch Raises India FY26 Projections To 7.4% On High Consumer Demand and GST Reforms

Ratings agency Fitch Ratings has revised India’s FY26 growth projections to 7.4%, from 6.9% earlier owing to strong-than-expected consumer spending and impact from goods and services tax (GST) reforms, which came into effect from September 22. “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,” the agency said on December 4.

The new upward revision in growth projection comes a week after India posted a stronger-than-expected real GDP print for the quarter September, marking the second quarter of consistent strong growth amid falling inflation. In Q2FY26, the real GDP expanded 8.2%, as against 5.6% for the corresponding period a year ago. For the quarter ended July, the Indian economy posted a growth of 7.8%, beating the Reserve Bank of India and analysts expectations of 6.5-6.7%.

For FY27, the global ratings agency expects growth to ease to 6.4% with domestic demand, especially consumer spending, remaining the key driver. As per the report, government capital expenditure is likely to moderate while private investment will likely see an uptick in H2FY27 as financial conditions loosen. For FY28, India’s GDP growth is expected to further ease to 6.2% owing to higher imports offsetting stronger domestic demand.

The ratings agency also highlighted external risks, pointing out that India still faces one of the highest reciprocal tariffs from the US. The US slapped India with 25% tariff and an additional punitive tariff of 25%  in August, pushing total tariffs to 50%. Although India-US trade deal has entered the last round of talks, the absence of a solid trade pact with Washington has left investors jittery.

Room For Rate Cut In The Last Monetary Policy Review

The RBI’s Monetary Policy Committee commenced its last monetary policy review of the year on December 4 and the policy outcome will be announced on December 5. With consistent fall in inflation print and stronger than expected GDP growth in H1FY26, market participants remain mixed on their policy expectations. While some say the ease in inflation provides more room for rate cuts, the GDP print suggests waiting for more incoming data to assess and then cut rates in the next policy meeting if needed.

However, the sharp fall of the rupee to the psychologically crucial level of 90-per-dollar mark has complicated case for an immediate rate cut for the RBI.

Fitch says RBI’s rate-setting panel have room for one more rate cut at its December policy meet owing to the easing inflation. The agency expects a 25 basis points rate cut, bringing the benchmark repo rate to 5.25%. The MPC has cut 100 bps in 2025. Fitch believes the RBI has reached the end of its monetary policy easing cycle and will keep the rates steady over the next two years.