Fitch Ups India’s FY26 Growth Forecast to 7.4% Amid Strong Consumer Demand

Global credit rating agency Fitch Ratings has revised India’s GDP growth forecast for FY26 to 7.4%, up from its earlier estimate of 6.9%, reflecting strong consumer demand, improved sentiment, and the effects of recent Goods and Services Tax (GST) reforms. The upward revision was announced on December 4, 2025, in Fitch’s Global Economic Outlook, just days after India posted a stellar 8.2% growth rate in Q2 (July–September)—the fastest pace in six quarters.

Private Consumption Leading the Charge

Fitch highlighted that the primary driver of India’s growth this year is private consumer spending, which has been supported by,

• Stronger real income dynamics
• Increased consumer sentiment
• The positive spillovers from recent GST reforms
• These factors have boosted demand across sectors, particularly in urban markets, creating a more robust foundation for economic activity.

The report noted that while growth remains elevated for now, momentum may soften over the rest of the financial year due to base effects and moderating public investment.

Nominal vs Real GDP: The Gap Narrows

An important economic insight from Fitch’s report was the narrowing gap between nominal and real GDP. In Q2 FY26, the GDP deflator—a measure of inflation within GDP—was only 0.5% higher year-on-year, indicating that price effects played a minimal role in inflating growth figures.

This narrowing is often seen during periods of stable inflation, making the growth more sustainable and less distorted by price levels.

FY27 Forecast: A More Balanced Growth Path

Looking ahead, Fitch expects India’s growth to moderate to 6.4% in FY27, returning closer to its potential growth estimate. The agency suggests,

• Public investment growth may slow down.
• Private investment is expected to pick up in the second half of FY27 as financial conditions improve.
• Consumer spending will remain the mainstay of growth.

This outlook implies that India’s economic expansion will be more balanced, shifting from public-led to private-led investment.

Inflation Outlook and RBI Policy Moves

Fitch predicts retail inflation to average just 1.5% in FY26, a sharp decline that gives the Reserve Bank of India (RBI) space to cut rates further. The agency expects,

• One additional rate cut in December 2025, lowering the repo rate to 5.25%.
• No further rate cuts over the next two years, marking the end of the easing cycle.
• However, inflation is expected to rise again to 4.4% in FY27, driven by base effects and gradual economic tightening.

Rupee and External Sector

Despite recent pressure on the Indian rupee, which hit a record low of 90.29 per USD in early December 2025, Fitch anticipates only a moderate depreciation going forward. It projects,

• The rupee to strengthen to 87 per USD by end-2026.
• A relatively stable trajectory through 2027.

Fitch also pointed out that India faces high effective tariff rates—about 35%—on exports to the US, which could act as a constraint on external demand. A trade agreement to reduce this barrier could boost India’s export competitiveness.

Key Takeaways

• Fitch raised India’s FY26 GDP growth forecast to 7.4%, up from 6.9%.
• Growth is led by private consumer demand and GST reforms.
• Q2 FY26 saw 8.2% GDP growth, highest in six quarters.
• Nominal-real GDP gap narrowed, with a deflator of only 0.5%.
• FY27 GDP growth forecast is 6.4%, reflecting economic normalization.
• Retail inflation to average 1.5% in FY26, rising to 4.4% in FY27.