NEW DELHI: Global ratings agency Fitch Ratings has revised its growth forecast for India, raising its projection for the fiscal year ending March 2026 (FY26) to 6.9 percent, up from the previous 6.5 percent. The upgrade comes after a stronger-than-expected economic performance in the second quarter of 2025, where real GDP growth accelerated to 7.8 percent year-on-year, surpassing Fitch's earlier forecast of 6.7 percent.
The key drivers behind this robust growth were a sharp acceleration in the service sector, which grew by 9.3 percent year-on-year, and strong consumption spending from both the private and public sectors. While the GDP deflator growth was at its lowest since 2019, suggesting a potential overstatement of real GDP, Fitch notes that positive indicators like strong PMI data and an increase in industrial output point to continued economic momentum.
Looking ahead, Fitch projects that domestic demand will be the primary engine of growth. Strong real income dynamics are expected to boost consumer spending, while looser financial conditions will stimulate investment. However, the rating agency anticipates a moderation in growth during the second half of the financial year. Consequently, it forecasts a slowdown to 6.3 percent in FY27 and a further edging down to 6.2% in FY28 as the economy operates slightly above its potential.
On the inflation front, a significant drop in food prices pushed headline inflation down to 1.6 percent in July, the lowest since June 2017. Core inflation also fell below 4 percent for the first time in six months. Fitch attributes the weak price pressures to an above-average monsoon season and high food stockpiles. It forecasts a gradual pick-up in inflation, reaching 3.2 percent by the end of 2025 and 4.1percent by the end of 2026.
Despite the low inflation, the Reserve Bank of India (RBI) is expected to exercise caution. Fitch predicts the central bank will implement a single 25 basis point rate cut towards the end of the year to assess the impact of existing policy loosening. The agency expects rates to remain stable throughout 2026 before the RBI begins a rate-hiking cycle in 2027.