Rating agency Fitch has revised India's GDP growth forecast for FY25 down from 6.4% to 6.3%, while leaving the FY26 growth projection unchanged at 6.5%. It has also slightly revised the FY27 projection upwards to 6.3% from the earlier expected 6.2 percent. The agency notes that while more aggressive-than-expected U.S. trade policies pose a significant risk to these forecasts, it believes India is somewhat insulated due to its low reliance on external demand.
The rating agency in its latest Global Economic Outlook report says that business confidence remains high in India as lending surveys point to continued double-digit growth in bank lending to the private sector. It acknowledges the fact that the Union Budget continues to maintain its focus on high levels of public capital expenditure, even if the budget will be broadly neutral for growth. It makes a special mention of reduction in the cost of capital that might further help in boost to capital investment in FY26 and FY27.
Though it points to lower consumer confidence recently, the rating agency believes lower inflation will boost real incomes. Moreover, it notes that the increased tax-free income allowances and revised tax brackets in the Budget will raise post-tax incomes. These along with a steady employment growth will support consumer spending growth, albeit at a slower rate than this year.
Fitch predicts that food price dynamics in the coming months will enable a gradual decline in the headline inflation rate to 4.0% by end-2025, and a mild increase in inflation to 4.3% by December 2026. It forecasts two more rate cuts in 2025 after the RBI began loosening policy in early February with a 25bp cut in the repo rate to 6.25%.