Fitch Ratings Revises India's Growth Forecast for FY27 to 6.3%
Fitch Ratings has kept India's GDP growth forecast for FY26 at 6.5%. However, the global rating agency has revised its growth estimate for FY27, increasing it by 10 basis points to 6.3% in the Global Economic Outlook report released on March 19.
The agency stated that although the aggressive trade policy of the United States poses "a significant risk" to its projections, India is less affected due to its lower dependency on external demand.
The report also mentions that the increase in tax-free income allowances and revised tax slabs in the budget will boost post-tax income, thereby boosting consumer spending. However, growth might remain slower compared to the current year.
Fitch Ratings believes that the budget is largely neutral for growth, but anticipates a boost in capital expenditure (capex) in the next two financial years.
Fitch stated, “Business confidence remains high, and private sector lending surveys indicate sustained double-digit growth in bank lending. These factors, combined with lower capital costs, suggest an acceleration in capex in FY26 and FY27.”
The Economic Survey has projected India's GDP growth for FY26 to be between 6.3% and 6.8%, with official estimates indicating a 6.5% GDP growth for the current financial year. India's real GDP growth slowed to 5.4% in the July-September 2024 quarter, but rebounded to 6.2% in the following quarter.
Fitch's report also noted a decline in consumer confidence in recent months and a significant fall in vehicle sales. However, it stated that lower inflation would support real income growth, and both official data and PMI surveys point towards stable job growth and increased labor force participation.
Expectations for policy rate cuts are high, with Fitch predicting two more cuts in the current calendar year, bringing the rate to 5.75% by December 2025. The RBI had already cut the repo rate by 25 basis points to 6.25% in early February. The report further states, “Headline inflation will gradually decline due to food price dynamics, reaching 4% by the end of 2025, and slightly rising to 4.3% by December 2026.”
Last week, Moody's Ratings also revised India's economic growth forecast for the next financial year to 6.5%, up from 6.3% this year.