New Delhi: Fitch Ratings Thursday raised India's FY26 gross domestic product (GDP) growth forecast to 7.4% from 6.9%, citing higher consumer spending driven by strong real income, increased consumer sentiment and the impact of recently implemented goods and services tax reforms.
Fitch expects GDP growth to slow to 6.4% in FY27. India's GDP growth surged to a six-quarter high of 8.2% in Q2FY26.
The ratings agency sees limited downside for the Indian rupee and expects it to strengthen to 87 per dollar by end-2026 from 88.5 projected for end-2025. The outlook comes a day after the currency hit a record low of 90.29 per dollar before closing at 90.19.
It noted that the falling inflation gives the Reserve Bank of India (RBI) room for one more policy rate cut in December to 5.25%, following 100 basis points cut in 2025 so far. Retail inflation fell to a record low of 0.25% in October.
RBI's Monetary Policy Committee is slated to announce its policy review on Friday.
The agency said it expects the RBI to have reached the end of its easing cycle, and that rates will remain at 5.25% over the next two years with core inflation recovering and activity projected to remain strong.
It also highlighted that India faces one of the highest effective tariff rates on its exports to the US (around 35%), and said that a trade deal between the two countries would reduce the tariff rate and "boost external demand".
The ratings agency mentioned that private consumer spending is the main driver of growth this year, supported by strong real income dynamics, increased consumer sentiment and the impact of recently implemented GST reforms. Effective September 22, India unveiled sweeping reforms of the GST framework shifting to a two-rate structure of 5% and 18%. The revamp led to a decrease in tax rate of about 375 items.
Fitch projected private investment to pick up in the second half of 2026-27 as financial conditions loosen. "Public investment growth will ease in the context of relatively tight fiscal policy, but private investment should pick up in 2HFY27 as financial conditions loosen; private consumer spending growth will also ease as rising inflation constrains incomes."