Fitch Ratings has revised India’s economic growth projection for fiscal year 2026, raising it to 6.9% from the earlier 6.5%, as strong household demand and favorable financial conditions continue to fuel expansion. The decision followed a robust performance in the April–June quarter, where gross domestic product (GDP) grew 7.8% year-on-year, compared with 7.4% in the preceding quarter.
A sharp rise in services was a major factor, with output surging 9.3% compared to 6.8% previously. On the demand side, both household and government spending played a critical role, with private consumption climbing 7% during the first quarter.
Despite the upbeat momentum, Fitch flagged downside risks tied to escalating trade frictions with the United States. Washington imposed an additional 25% tariff on Indian imports in August, a move that could dampen investor sentiment if negotiations fail to ease the burden.
Nevertheless, survey data suggests resilience. The composite Purchasing Managers’ Index (PMI), a gauge of business activity, hit a 17-year high in August, while industrial output reached its strongest level in four months. Economists believe the recent cuts in Goods and Services Tax (GST), which took effect in September, could provide an incremental lift to growth, estimated at around 10 basis points.
Looking ahead, Fitch expects the economy to moderate slightly after the initial surge. Growth is projected to cool to 6.3% in FY27 and 6.2% in FY28, as the extraordinary momentum from early FY26 is unlikely to last through the second half. Still, domestic demand will remain the backbone of expansion.
On inflation, the outlook has brightened considerably. Headline inflation dropped to 1.6% in July, the lowest since 2017, largely due to subdued food prices and strong supplies. Core inflation also fell below 4%. Fitch forecasts average inflation of 3.2% by end-2025 and 4.1% by end-2026.
In monetary policy, the Reserve Bank of India (RBI) is anticipated to cut interest rates by 25 basis points toward the close of 2025. Rates are expected to remain steady until late 2026, after which hikes could resume in 2027.
While Fitch has yet to revise India’s sovereign rating, optimism is building. Earlier this year, S&P Global Ratings raised India’s grade after an 18-year gap, highlighting the country’s resilient economy and prudent fiscal management.
