Economic Outlook
Global rating agency Fitch has reaffirmed India’s economic growth forecast at 6.5% for FY26, with a slight increase to 6.3% in FY27 from 6.2% in its December update. India’s low reliance on external demand is expected to insulate it from potential US tariff actions.
Key Projections
- FY26 Growth: 6.5% (unchanged)
- FY27 Growth: 6.3% (up from 6.2%)
- FY25 Growth: 6.4%
Fitch’s forecast is better than the OECD’s estimate of 6.4% for FY26 but slightly below the RBI’s projection of 6.7%.
India’s economy grew 6.2% in Q3 FY24, rebounding from a two-year low of 5.6% in Q2 (July-September). However, Fitch does not expect this slowdown to persist, citing strong consumer and business confidence, infrastructure expansion, and high capacity utilization as key supporting factors.
Inflation & Rates
- Inflation FY26: Unchanged at 4%
- Inflation FY27: 4.3% (up from 4%)
- Repo Rate: 5.75% by end-FY26 (earlier 6.25%), no further cuts by FY27 end
The Reserve Bank of India (RBI) began easing rates in February, implementing a 25 basis points (bps) cut in the repo rate to 6.25%. Economists expect two more consecutive rate cuts in April and June, bringing the policy rate down to 5.75% by December 2025.
Global Growth & Trade Risks
Fitch lowered the global growth forecast to 2.3% for 2025, down from 2.9%, due to increasing trade restrictions and geopolitical risks. The US is set to impose significant tariffs:
- 15% Effective Tariff Rate (ETR) on Europe, Canada, and Mexico in 2025
- 35% ETR on China
- US ETR to peak at 18% in 2025 – highest in 90 years, before moderating to 16% in 2026 as ETR on Canada and Mexico falls to 10%
Fitch projects that these tariffs will reduce GDP by about 1 percentage point (pp) in the US, China, and Europe by 2026.
Conclusion
Despite rising global uncertainties, India’s strong domestic fundamentals continue to support a 6.5% growth trajectory for FY26. With inflation under control and monetary easing in progress, India remains well-positioned to navigate external challenges effectively.
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