NEW DELHI: Fitch Ratings on Wednesday raised India’s growth outlook for the fiscal year ending March 2026 to 6.9%, from its June estimate of 6.5%, citing stronger-than-expected momentum in the services sector and resilient consumption spending from both households and the government.
The Indian economy expanded 7.8% in the first quarter (April-June) of FY26, its fastest pace in five quarters, defying expectations of a slowdown.
“The wedge between nominal and real GDP growth narrowed sharply, with GDP deflator growth (0.9% year-on-year) at its lowest since 3Q19,” Fitch noted in its September Global Economic Outlook.
Still, the agency warned that real GDP may be overstated, given past patterns when wholesale prices were weak and commodity costs were falling. That effect could reverse if prices climb again.
Fitch pointed to resilient purchasing manager surveys and a pickup in industrial output as signs that momentum will hold. But it flagged rising trade tensions with Washington as a risk. The US has imposed a 50% tariff on Indian imports, including a 25% penalty tied to purchases of Russian crude oil. Fitch expects the levies will eventually be negotiated down but said the uncertainty is already weighing on sentiment and investment.
New Delhi has criticized US tariffs move as punitive, warning of potential disruptions to supply chains and capital flows.
Even so, recent PMI readings suggest strength across sectors. India’s August manufacturing PMI climbed to 59.3, its highest in more than 17 years, up from 59.1 in July, reflecting improved supply-demand alignment. The index had hovered between 57.6 and 58.4 in the prior three months.
Services activity accelerated even more sharply. The services PMI rose to 62.9 in August, the strongest since June 2010, from 60.5 in July and 60.4 in June. The index has now remained above the 50-point expansion threshold for more than four years.
“Domestic demand will be the key driver of growth, as strong real income dynamics support consumer spending and looser financial conditions should feed through to investment,” Fitch said.
“At the same time, annual growth will slow in the second half of the financial year, and so we expect growth to slow in FY27 to 6.3%. With the economy operating slightly above its potential, we expect growth will edge down to 6.2% in FY28,” it added.
The Reserve Bank of India (RBI) projects FY26 growth at 6.5%, pointing to government-led capital expenditure and a nascent recovery in rural demand as key supports.
Other forecasters have been more cautious. The Asian Development Bank this week lowered its FY26 outlook to 6.5% from 6.7%, citing concerns over US tariffs and policy uncertainty, and trimmed its FY27 forecast to 6.7%. By contrast, the International Monetary Fund in July raised its FY26 forecast to 6.4% from 6.2%, also pegging FY27 growth at 6.4%, citing sustained domestic resilience and a more favourable external backdrop.
Fitch expects India’s food inflation to stay subdued this year, supported by above-average rainfall and large stockpiles, with overall inflation projected to hit 3.2% by year-end.
India’s retail inflation fell to its slowest pace in eight years in July as food prices cooled, staying below the central bank target for the fifth month in a row.
The consumer price index (CPI) rose just 1.55% annually in July, slipping below the lower end of the Reserve Bank of India’s 2-4% target range, in the weakest increase since June 2017. The fall was led by food prices that dipped 1.76%, their biggest decline since at least January 2019, as strong monsoon rains boosted farm output.
Fitch has forecast that the RBI will cut rates by 25 basis points later this year, hold them through 2026, and then begin raising them in 2027.