Global rating agency Fitch has revised India’s growth outlook for FY26 upward to 6.9%, from its earlier projection of 6.5% in the June Global Economic Outlook (GEO). The move comes as a relief — almost like a cool wind — against the backdrop of mounting global trade tensions triggered by former US President Donald Trump’s renewed tariff measures.
According to Fitch, domestic demand will remain the key driver of growth, supported by strong real income dynamics and looser financial conditions that will encourage investment. The upgrade follows a sharper-than-expected surge in activity between Q1 and Q2 of FY25, underscoring India’s resilience despite external headwinds.
India’s real GDP growth hit 7.8% year-on-year in Q2 FY25, compared to 7.4% in Q1, comfortably beating Fitch’s earlier 6.7% forecast. Much of this momentum was fueled by the services sector, which expanded by a striking 9.3%, alongside solid private and public consumption spending.
However, Fitch cautioned that the economy is currently operating slightly above its potential, meaning growth is likely to moderate in the coming years:
- FY27: 6.3%
- FY28: 6.2%
At the same time, external risks loom large. The US has imposed an additional 25% tariff on Indian imports, raising concerns for exporters and investors. While Fitch expects these tariffs to be negotiated down eventually, the uncertainty could dampen business sentiment in the near term.
On the brighter side, inflation is cooling: July headline inflation eased to 1.6%, the lowest since June 2017, aided by lower food prices. Core inflation also dropped below 4% for the first time in six months.
In terms of monetary policy, Fitch forecasts the RBI will cut rates by 25 basis points towards the end of 2025 to support growth, holding them steady until late 2026 before gradual tightening resumes in 2027.