Fitch Upgrades India’s FY26 Growth Forecast to 6.9%, Citing Strong Demand Amid Global Risks

Fitch Ratings has raised India’s GDP growth forecast for fiscal year 2025–26 to 6.9%, up from its earlier estimate of 6.5%. The upgrade reflects robust domestic demand, a strong services sector, and supportive financial conditions, despite looming trade uncertainties and global pressures.

India’s economy posted an impressive 7.8% year-on-year expansion in the first quarter of FY26, surpassing previous expectations. Services output surged by 9.3%, a significant jump from 6.8% in the preceding quarter. Private consumption, a key driver of growth, rose by 7% during the April–June period, buoyed by rising incomes and favorable financial conditions.

Fitch underscored that domestic demand will continue to be the main engine of growth. The agency noted that supportive real incomes and looser financial conditions should sustain investment and consumer spending throughout the year.

Inflation and Policy Outlook

Headline inflation fell to 1.6% in July, its lowest level since 2017, driven by weak food prices and abundant stockpiles. Core inflation also declined below 4%. Fitch projects that inflation will average 3.2% by the end of 2025 and rise modestly to 4.1% by the end of 2026.

The Reserve Bank of India (RBI) is expected to reduce policy rates by 25 basis points toward the end of 2025. Rates are likely to remain steady until late-2026 before hikes resume in 2027.

Despite the positive outlook, Fitch flagged risks stemming from rising trade tensions between India and the U.S. In August, the U.S. imposed an additional 25% tariff on imports from India, creating uncertainty that could weigh on investment sentiment. While Fitch expects that negotiations will eventually reduce the tariffs, it cautioned that ongoing uncertainty may dampen business confidence.

Fitch highlighted ongoing structural reforms, including GST cuts effective from September, which are expected to boost consumer spending and lend further momentum to growth. The composite Purchasing Managers’ Index (PMI), a gauge of business activity, hit a 17-year high in August. Industrial output also rose to a four-month peak, reinforcing signs of a strengthening economy.

Looking ahead, Fitch expects India’s growth to moderate to 6.3% in FY27 and 6.2% in FY28. While domestic demand will remain resilient, the early-year momentum may not be fully sustained in the latter half of FY26.

Fitch has not yet upgraded India’s sovereign rating, but its positive growth outlook builds on broader global confidence in the country’s economic trajectory. Earlier this year, S&P Global Ratings raised India’s rating after an 18-year hiatus, citing prudent fiscal management and sustained growth prospects.

With millions of livelihoods tied to economic stability, Fitch’s optimistic forecast underscores India’s resilience amidst global uncertainties, while highlighting the importance of reforms, consumption, and prudent policymaking in shaping the country’s long-term growth story.