Fitch Ratings has revised India's economic growth forecast upwards, projecting a 6.9% growth rate for the fiscal year ending March 2026 (FY26), a notable increase from its previous estimate of 6.5%. This optimistic revision follows a stronger-than-anticipated economic performance in the second quarter of 2025, where real GDP growth accelerated to 7.8% year-on-year, exceeding Fitch's earlier prediction of 6.7%.

The key factors driving this upward revision are robust domestic demand, strong real income growth supporting consumer spending, and the expectation that looser financial conditions will stimulate investment. The sharp acceleration in the service sector, which grew by 9.3% year-on-year, and strong consumption spending from both the private and public sectors also contributed to the robust growth. Recent reforms to the Goods and Services Tax (GST) are also expected to provide a modest boost to consumption in the current fiscal year and beyond.

However, Fitch anticipates a moderation in growth during the second half of the fiscal year. Consequently, it forecasts a slowdown to 6.3% in FY27 and a further decrease to 6.2% in FY28 as the economy operates slightly above its potential.

On the inflation front, a significant drop in food prices pushed headline inflation down to 1.6% in July, the lowest since June 2017. Core inflation also fell below 4% for the first time in six months. Fitch attributes the weak price pressures to an above-average monsoon season and high food stockpiles. It forecasts a gradual pick-up in inflation, reaching 3.2% by the end of 2025 and 4.1% by the end of 2026.

Despite the low inflation, the Reserve Bank of India (RBI) is expected to exercise caution. Fitch predicts the central bank will implement a single 25 basis point rate cut towards the end of the year to assess the impact of existing policy loosening. The agency expects rates to remain stable throughout 2026 before the RBI begins a rate-hiking cycle in 2027.

Globally, Fitch has slightly raised its 2025 world growth forecast to 2.4%, citing stronger data from China and the Eurozone, while noting signs of a slowdown in the US economy. For 2026, global growth is projected at 2.3%.

Concerns remain about the potential impact of recently imposed US tariffs on Indian goods, which the Chief Economic Advisor (CEA) estimates could reduce India's GDP growth by around 0.5% in FY26. However, the government is exploring policy measures, such as a GST overhaul, to offset these negative effects and potentially boost GDP.