CHENNAI: Fitch Ratings has lifted its forecast for India’s economic growth in FY26 to 7.4 percent from its earlier projection of 6.9 percent, citing stronger-than-expected consumer spending and the positive impact of ongoing GST reforms. The upgrade reflects Fitch’s view that domestic demand remains the backbone of India’s expansion, supported by easing inflation, firmer household incomes and improving sentiment across consumption-driven sectors.
According to the agency, consumer spending has accelerated as price pressures have cooled and a series of GST revisions have lowered the cost of several goods. This has given households more spending power at a time when the broader economy is benefitting from resilient services activity, steady urban demand and expanding credit flow. Fitch noted that the reforms associated with the newer phase of GST implementation have contributed to making consumption goods more affordable, thereby pushing demand higher than previously estimated.
The upgrade also rests on an improved inflation outlook. With headline inflation moderating, Fitch believes financial conditions may ease further if the central bank opts for additional policy support in the months ahead. The expectation of potential rate cuts has reinforced the view that domestic investment and credit expansion will continue to provide momentum to growth. Even so, Fitch has signalled that growth could taper slightly in FY27 as the extraordinary push from consumption and tax reforms normalises.
The latest forecast underscores India’s growing reliance on its domestic market at a time when global demand remains uneven and external risks persist. While strong household spending is helping to absorb global shocks, Fitch cautioned that maintaining this pace of growth will require a sustained pickup in private investment, steady job creation and continued progress on structural reforms. High-frequency indicators for services, retail activity and travel suggest that urban demand remains firm, though rural recovery still needs to broaden for a more balanced expansion.
For policymakers, the revised forecast strengthens the argument that India’s reform trajectory is contributing to a structurally stronger growth path. It also places added emphasis on the need to maintain fiscal stability and ensure that inflation remains anchored, especially as the government balances welfare commitments with capital expenditure. For businesses, the improved growth outlook signals continued buoyancy in consumer-facing industries, from retail and FMCG to automobiles, housing and financial services. Households may also benefit from the combination of slower inflation and the possibility of lower borrowing costs, which together could support discretionary spending.
Despite the positive momentum, Fitch highlighted potential risks that could influence the trajectory ahead. A resurgence in inflation, a sharper-than-expected global slowdown or weaker government revenues could limit policy flexibility. Additionally, if private investment does not accelerate meaningfully, the burden of sustaining growth will remain heavily concentrated on consumption. Even so, Fitch’s upgraded projection marks a reaffirmation of India’s position as one of the fastest-growing major economies, with domestic demand offering the foundation for continued expansion through FY26.