Fitch Raises India's Growth Forecast to 7.4%
Fitch Increases India's GDP Growth Estimate for Current Fiscal Year
Credit rating agency Fitch Ratings raised its GDP growth forecast for India from 6.9% to 7.4% for the current fiscal year. This upward revision was primarily driven by increased consumer spending and positive sentiment due to GST reforms. Fitch noted that falling inflation allows the Reserve Bank of India (RBI) to potentially cut its policy rates further to 5.25% in December. The RBI has already reduced the repo rate by 1% this year.
According to Fitch, India's GDP growth rate in the July-September quarter rose to 8.2%, compared to 7.8% in the previous April-June quarter. In its Global Economic Outlook report for December, Fitch stated that while growth will slow in the remaining part of fiscal year 2025-26, it raised its full-year GDP growth forecast to 7.4%, up from the 6.9% estimate in September.
The growth this year is mainly driven by private consumer spending, supported by stronger real income dynamics, improved consumer sentiment, and the impact of recent Goods and Services Tax (GST) reforms. Under the GST rationalization, the tax rates on about 375 items have been reduced, making over 99% of consumer goods cheaper. The revised GST rates came into effect on September 22.
Fitch expects India's GDP growth to slow to 6.4% in the fiscal year 2026-27. However, the agency anticipates that with improvements in fiscal conditions, private investment will pick up in the second half of the next fiscal year (2026-27).
Due to lower food prices, the Consumer Price Index-based inflation dropped to its lowest level of 0.3% in October.
Fitch added, "We expect falling inflation to give the RBI room to cut the policy rate further to 5.25% in December…" The RBI will announce its monetary policy review on November 5.
According to Fitch, with core inflation improving and activities remaining strong, the RBI has reached its highest level of policy rate cuts, and the rate is expected to remain at 5.25% for the next two years.