India’s Growth Outlook Strengthens

India continues to outpace major global economies. Fitch Ratings revised India’s FY26 growth forecast upward from 6.5% to 6.9%, backed by resilient domestic demand and booming services activity.

GDP expanded 7.8% year-on-year in Q1 FY26, the sharpest pace in five quarters. Softer inflation, higher disposable incomes, and GST-driven tax relief have supported household consumption. Meanwhile, government reforms and strong credit flows have reinforced economic momentum.

Key Growth Drivers Behind the Upgrade

• Consumption Boom : Rising wages, stable inflation, and tax cuts have fueled household spending, lifting demand across consumer goods and services.

• Services Momentum : IT, finance, and consumer services remain the growth backbone, contributing heavily to Q1 expansion.

• Industrial Push : Steady gains in manufacturing, construction, and infrastructure projects have bolstered output.

• Policy Support : A stable macroeconomic framework, fiscal discipline, and liquidity support from banks have created a favorable investment climate.

Rising Trade Risks with the U.S.

Despite the upbeat outlook, Fitch flagged trade tensions with the U.S. as a key downside risk. Washington’s imposition of a 25% tariff on certain Indian imports could dent export competitiveness and investor sentiment.

Fitch also noted that part of India’s strong GDP print was flattered by low commodity and wholesale prices. A rebound in input costs could compress margins and weigh on growth in coming quarters.

Inflation and RBI’s Policy Path

India’s retail inflation has remained low, aided by good monsoons and stable food prices, which has supported household purchasing power. Fitch expects inflation to stay moderate through FY26.

On monetary policy, the agency projects the RBI may cut rates by 25 bps later in 2025, hold through FY26, and consider tightening again in FY27 if global or domestic inflation pressures return.

Beyond FY26 : Growth to Gradually Moderate

Fitch forecasts India’s growth to ease as global headwinds intensify:

• FY27: 6.3%

• FY28: 6.2%

The moderation reflects softer export prospects amid global trade frictions. However, Fitch emphasized that domestic demand strength will continue to cushion the economy against external shocks.

Final Word

Fitch’s latest upgrade reaffirms India’s status as the world’s fastest-growing major economy, powered by consumption, services, and supportive policies.

Still, risks loom large. U.S. tariffs, potential commodity price spikes, and weaker global demand could temper momentum. For policymakers, the challenge will be to sustain reforms, incentivize investment, and mitigate external risks to keep India’s growth trajectory on track beyond FY26.