Fitch Ratings has upgraded India’s growth forecast to 7.4% for FY 2026, up from the earlier estimate of 6.9%. It noted that consumer spending and overall sentiment have been strengthened on the back of GST rationalisation.
Although the growth in the remainder of the financial year may see a lag, the country has witnessed significant growth in the first and second quarters of the year, where it stood at 7.8% and 8.2%, respectively.
“Growth will ease over the remainder of the financial year 2025-26 (to end-March), but we have raised our full-year growth forecast to 7.4 per cent, from 6.9 per cent in September,” Fitch said in its December Global Economic Outlook report.
GST reforms
In September 2025, the Indian government reduced GST rates on more than 375 items. While nearly 99 percent of all goods were moved into lower tax brackets of zero percent, 5 percent, or 18 percent, only 1 percent of items now face the highest tax rate of 40 percent. As the reforms made many products cheaper, customer spending increased, which in turn bolstered demand and production. Now households are buying more goods and services while businesses are expanding production and hiring more workers.
Retail inflation at a record low
India’s retail inflation hit a historic low of 0.25% in October, with a significant fall in the prices of food and beverages after the GST cut. It further boosted the domestic demand and consumption. When inflation is high, people’s money buys less. When inflation is low, people can buy more with the same amount of money.
“We expect falling inflation should give the Reserve Bank of India (RBI) room for one more policy rate cut in December to 5.25 per cent, following 100 bp of cuts in 2025 so far, and a series of reductions in the cash reserve ratio (from 4 per cent to 3 per cent),” Fitch said.
Impact on RBI policy
Fitch expects the Reserve Bank of India (RBI) to cut the repo rate by 25 basis points in its Monetary Policy Meeting (MPC) this month. This will bring the rate down to 5.25 per cent. The policy rate is the interest rate at which RBI lends money to banks. Lower rates make loans cheaper for businesses and households, encouraging more spending and investment.
The RBI has already reduced rates by a percentage point (100 basis points) and lowered the cash reserve ratio from 4 per cent to 3 per cent this year. This has improved liquidity in the banking system, leading to credit growth.
Fitch believes that after the upcoming repo rate cut, the Central Bank will keep the policy rate steady at 5.25 per cent for a long time, as inflation is expected to rise again gradually.
For the next financial year, 2026-27 (FY27), Fitch expects India’s growth to slow to 6.4 percent as the impact of the GST reforms fade and inflation becomes higher.
IMF View
The International Monetary Fund (IMF) has projected a GDP growth of 6.6 percent in FY26. The IMF believes that, while GST reforms will help, external factors, such as tariffs from the United States, could affect growth.