Fitch Ratings raised its forecast for India's GDP growth in the fiscal 2025-26 to 6.9% from 6.5%, citing robust domestic demand. The agency expects strong consumer spending and looser financial conditions to support investment.
The comments were part of Fitch's latest Global Economic Outlook report.
The rating firm said it sees inflation rising to 3.2% by the end of 2025 and 4.1% by the close of 2026. It projects GDP growth to slow to 6.3% and 6.2% in the two fiscals, respectively.
Fitch added that recent goods and services tax reforms are likely to modestly boost consumption in the current fiscal and beyond. Domestic demand will remain the key driver of growth, supported by household spending.
On monetary policy, Fitch expects the Reserve Bank of India to cut the repo rate by 25 basis points towards the end of this year. It forecasts the central bank will begin raising rates again in 2027 as inflationary pressures return.
Low food prices have pushed headline inflation down to 1.6% in July, the lowest outturn since June 2017. Core inflation fell below 4% for the first time in six months.
"We expect food price pressures will remain weak, in the context of above-average monsoon rainfall and high food stockpiles, so that inflation will only pick up to 3.2% by end-2025 and 4.1% by end-2026," Fitch said.
The rating agency also touched upon the uncertainty stemming from India-US trade tensions. These tensions have increased now, with the US imposing an additional 25% tariff on imports from India.
"We expect this will eventually be negotiated lower, but the uncertainty around trade relations will dampen business sentiment and potentially investment," Fitch said in its report.
At the same time, the purchasing managers index survey data point to a strong pace of economic activity in the coming months, and industrial output growth picked up in July, Fitch noted.
"The government has adopted reforms to the Goods and Services Tax to be effective from 22 September, which should modestly boost consumer spending over the remainder of this and the next fiscal years," it said.
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