Fitch raises India’s GDP growth projection to 7.4% citing GST reforms

RBI may lower key policy interest rate by 25 basis points

New Delhi: Fitch Ratings on Thursday raised India's economic growth forecast for the current financial year to 7.4 per cent from its earlier projection of 6.9 per cent, citing increased consumer spending and improved sentiment following the goods and services tax (GST) reforms.

India’s gross domestic product (GDP) expanded by 8 per cent in the first half of the 2025-26, exceeding the government as well as independent agencies’ projections by a wide margin.

“Growth will ease over the remainder of the financial year 2025-26 (to end-March), but we have raised our full-year growth forecast to 7.4 per cent from 6.9 per cent in September," Fitch said in its latest edition of the Global Economic Outlook report.

According to the rating agency, private consumer spending remained the main driver of India’s GDP growth, supported by strong real income dynamics and enhanced consumer sentiment. Goods and services tax rate cut and reforms, which came into effect from September 22, have played a notable role in boosting consumption.

For the financial year 2026-27, Fitch has pegged India’s GDP growth at 6.4 per cent, which will be sharply lower than the current fiscal performance. The growth is likely to ease further to 6.2 per cent in 2027-28.

“Public investment growth will ease in the context of relatively tight fiscal policy, but private investment should pick up in H2 of FY27 as financial conditions loosen; private consumer spending growth will also ease as rising inflation constrains incomes.”

The rating agency noted that the sharp decline in inflation should give the Reserve Bank of India (RBI) room for one more policy rate cut in December, following 100 basis points reduction in 2025 so far.

The three-day meeting of the central bank’s rate setting panel monetary policy committee started on Wednesday. RBI Governor Sanjay Malhotra is scheduled to announce the MPC decision on policy rates on Friday.

According to Fitch, the RBI may lower policy repo rate by 25 basis points to 5.25 per cent on Friday, which will be the end of its easing cycle. It added that the repo rate, or the interest at which the RBI lends money to commercial banks, would remain at 5.25 per cent over the next two years.

The annual retail inflation as measured by the Consumer Price Index (CPI) fell to a record low of 0.25 per cent in October, as per the latest official data. Inflation is projected to remain low in the coming months on the back of good monsoon and GST rate rationalisation.

Fitch Ratings upgrade on India’s GDP growth comes days after the official data showed 8.2 per cent expansion in GDP in July-September period, the sharpest growth in six quarters.

The RBI is also widely expected to raise its GDP growth projection for the current financial year substantially on Friday after the first half numbers beat its forecasts.