Amid heightened global uncertainties triggered by the US-Israel war with Iran, Fitch Ratings on Friday raised its growth forecasts for India by 0.1 percentage point (pp) to 7.5% for 2025-26 and by 0.3 pp to 6.7% for 2026-27, from its December projections.
The rating agency said domestic demand will anchor the economy in the current fiscal, with consumer spending estimated to grow 8.6% and investment rising 6.9%.
Domestic Demand
Fitch said though there are tentative signs of slowing activity in January and February, including in PMI surveys, the broader economy remains resilient, and credit growth continues to be in double digits.
Growth is expected to slow in the first half of 2026-27 as rising inflation erodes real incomes and restrains consumer spending. Investment growth may soften in the near term, but is likely to recover in the second half of 2026-27, supported by easier financial conditions and lower real interest rates.
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A comprehensive revision of national accounts data — including a rebasing of the reference year to 2022-23 from 2011-12 — has also smoothed India’s recent growth trajectory. Under the revised series, GDP growth for 2023-24 and 2024-25 is estimated at 7.2% and 7.1%, respectively, compared with 9.2% and 6.5% under the previous calculations.
Government capital expenditure is projected to increase broadly in line with nominal GDP growth, according to budget estimates. Weaker domestic demand is expected to reduce imports, resulting in a positive net trade contribution to growth. Externally, Fitch noted that lower effective tax rates in the US following a Supreme Court ruling and blanket tariffs under Section 122 could provide a marginal boost to external demand.
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Inflation Outlook
Consumer inflation has begun to rise from the lows seen late last year, reaching 2.7% in January from 1.2% in December, largely as the impact of falling food prices faded. “We expect inflation to rise steadily to 4.5% by December 2026, but it will remain well within the tolerance bands around the inflation target of 4% (+/- 2%),” it said.
However, persistently higher oil prices could push inflation up faster than expected.
The Monetary Policy Committee of the Reserve Bank of India kept the policy rate unchanged at 5.25% in February and reiterated a neutral policy stance.
Fitch expects interest rates to remain at current levels through this year and next, as policymakers balance inflation risks with moderating economic growth.
TOPICSGDPGDP growthThis article was first uploaded on March thirteen, twenty twenty-six, at fifteen minutes past nine in the night.