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Key Points

Fitch has positively revised India's growth outlook for FY26 to 6.9%. The upgrade follows stronger-than-expected economic performance in the first half of FY25. However, the agency anticipates a slowdown in the second half as the economy operates above potential. External challenges from US trade tensions and domestic inflation trends will influence future monetary policy decisions.

Key Points: Fitch Upgrades India GDP Outlook to 6.9% for FY26

  • Fitch upgrades India's FY26 GDP forecast to 6.9% from previous 6.5% projection
  • Growth driven by strong service sector expansion and robust domestic consumption
  • Agency warns of economic slowdown in second half of FY25 and FY27
  • Trade tensions with US and potential tariff impacts pose external challenges
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Fitch revises India's GDP outlook for FY26 to 6.9% from 6.5%, but indicates slowdown in second half

Fitch raises India's FY26 growth forecast to 6.9% from 6.5%, driven by strong domestic demand but warns of H2 slowdown and trade tensions.

"Domestic demand will be the key driver of growth, as strong real income dynamics support consumer spending - Fitch Report"

New Delhi, September 10

Global rating agency Fitch has revised India's growth outlook for the fiscal year ending March 2026 to 6.9 per cent from its earlier projection of 6.5% in June Global Economic Outlook (GEO).

"Domestic demand will be the key driver of growth, as strong real income dynamics support consumer spending and looser financial conditions should feed through to investment" noted the report.

The upgrade follows a sharper-than-expected acceleration in the pace of activity between the first and second quarter of FY25.

However, the report adds that economic momentum of the country is likely to slow in the second half of the current financial year as the economy is operating slightly above its potential.

"annual growth will slow in the second half of the financial year, and so we expect growth to slow in FY27 to 6.3%. With the economy operating slightly above its potential, we expect growth will edge down to 6.2% in FY28" adds the report

According to the report, India's real GDP growth rose to 7.8 per cent year-on-year in 2Q25, compared to 7.4 per cent in 1Q25. This was well above Fitch's earlier forecast of 6.7 per cent in the June GEO.

The acceleration was driven mainly by stronger service sector growth, which rose to 9.3 per cent year-on-year from 6.8 per cent in the previous quarter. On the expenditure side, both private and public consumption spending contributed significantly to the expansion.

At the same time, Fitch highlighted challenges from external pressures. Trade tensions with the United States have risen in recent months, with Washington imposing an additional 25 per cent tariff on imports from India.

While the report expects these tariffs to eventually be negotiated lower, the uncertainty surrounding trade relations is likely to weigh on business sentiment and potentially dampen investment activity.

On inflation, Fitch said low food prices have helped push headline inflation down to 1.6 per cent in July, the lowest level since June 2017. Core inflation also fell below 4 per cent for the first time in six months.

Regarding monetary policy, Fitch expects the Reserve Bank of India (RBI) to cut rates by 25 basis points towards the end of the year, while monitoring the effects of previous policy loosening. Rates are expected to remain at this level until end-2026, before the RBI begins raising them again in 2027.

- ANI

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Reader Comments

P
Priya S
The service sector growth at 9.3% is impressive! But the second half slowdown prediction is worrying. Hope the government has plans to maintain momentum.
M
Michael C
The US trade tensions are concerning. Additional 25% tariffs could hurt our exporters. Need diplomatic solutions quickly.
A
Ananya R
Low inflation at 1.6% is great news for common people! Finally some relief from price rise. Hope it stays this way. 🙏
S
Siddharth J
While the numbers look good, I hope this growth is inclusive and reaches the rural areas. Urban-rural divide remains a challenge.
K
Kavya N
RBI rate cut expected by year-end should help home buyers and businesses. Good timing with festival season coming up! 🎉
V
Vikram M
The predicted slowdown in FY27 to 6.3% shows we need structural reforms to sustain higher growth. Manufacturing needs more focus alongside services.

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