Fitch Ratings has expressed confidence in India's economic situation, raising its GDP growth forecast for FY26 from 6.9% to 7.4%. The Indian economy is expected to gain significant momentum due to b consumption, extensive GST reforms, and declining inflation.
GDP Outlook: Fitch Ratings has issued a major upgrade for India's economy. The agency has raised its GDP growth forecast for fiscal year 2025-26 (FY26) from the previous 6.9% to 7.4%. This adjustment indicates that the Indian economy is strengthening, with various factors, from domestic demand to tax reforms, steering the country's growth rate in a new direction.
Fitch states that the acceleration in consumption, improvement in consumer sentiment, and the impact of extensive GST reforms are now clearly visible. This is why India is likely to experience significantly faster growth compared to the global economy.
Consumption as the Main Engine
According to Fitch, private consumption is the most significant engine of economic growth this year. Robust income growth, improved consumer sentiment, and GST reductions are driving increased spending in the domestic market. Consumers have directly benefited from the extensive GST rate cuts implemented since September 22.
The government reduced taxes on a total of 375 items, making over 99% of consumer goods available at lower prices. This change has invigorated the market and boosted demand across all sectors, from retail to FMCG and durable goods.
Q2 GDP Growth at 8.2% – Better Than Expected Performance
The GDP figures for the July-September quarter also demonstrate the robustness of the Indian economy. According to the report, Q2 GDP growth was recorded at 8.2%, surpassing the 7.8% growth rate of the first quarter. However, Fitch anticipates that growth might slow down slightly in the coming quarters, but the full fiscal year average will remain around 7.4%, which is considered very b globally. The agency states that there has been a broad improvement in India's economic activities, with positive trends observed across all sectors, from private consumption to the service sector.
GST Reforms Transformed Growth Pattern
Fitch Ratings specifically noted in its assessment that the impact of GST reforms is widely visible in the country's economic structure. When consumer goods become cheaper, demand increases, benefiting every level from production to transportation and the service sector. This is why investor confidence in India remains b. The agency states that GST reforms have made the economy more organized, transparent, and business-friendly.
Relief from Declining Inflation
A rapid decline in inflation has further positively impacted the domestic economic environment. Retail inflation fell to just 0.3% in October, a record low level. This was primarily due to a reduction in food and beverage prices. According to Fitch, lower inflation boosts consumer purchasing power, which is why spending is increasing rapidly. The decrease in inflation also provides room for the Reserve Bank of India (RBI) to cut interest rates.
RBI May Announce Further Rate Cut in December
Fitch anticipates that the RBI may reduce the repo rate to 5.25% in December. The RBI has already cut a total of 100 basis points this year. The agency suggests that given the current economic conditions, falling inflation, and stable growth rate, the RBI may further ease its monetary policy. Additionally, a phased reduction in the Cash Reserve Ratio (CRR) from 4% to 3% could also have a positive impact on the market. The RBI's Monetary Policy Committee (MPC) will release its policy review on Friday, on which all eyes are set.
Private Investment Expected to Rise in FY27
According to the report, private investment could accelerate in the second half of FY27. With improved financial conditions and reduced borrowing costs, India's capital expenditure (Capex) is expected to pick up pace.
Furthermore, b domestic demand and rapid expansion of services will also attract investors. Fitch has set the GDP growth forecast for FY27 at 6.4%, which is still considerably better compared to developed and emerging economies.
