Fitch ups India's FY'26 GDP growth forecast to 7.4% on better consumer spending, GST reforms

New Delhi: Fitch Ratings on Thursday raised India's GDP growth forecast for the current fiscal to 7.4 per cent, from 6.9 per cent, on increased consumer spending and improved sentiment boosted by GST reforms.

It said falling inflation gives the Reserve Bank of India (RBI) room for one more policy rate cut in December to 5.25 per cent, following 100 bp of cuts in 2025 so far.

Fitch said GDP growth accelerated further in the July-September quarter to 8.2 per cent, from 7.8 per cent in the April-June quarter.

"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 Global Economic Outlook report for December.

Private consumer spending is the main driver of growth this year, supported by strong real income dynamics, increased consumer sentiment, and the impact of recently implemented goods and services tax (GST) reforms.

Effective September 22, GST on about 375 items has been slashed, making over 99 per cent of consumption items cheaper.

Fitch expects GDP growth to slow to 6.4 per cent in FY'27.

It projected private investment to pick up in the second half of the next fiscal (2026-27) as financial conditions loosen.

Consumer price inflation fell to an all-time low of 0.3 per cent in October, driven by lower food and drink prices.

"We expect falling inflation should give the Reserve Bank of India (RBI) room for one more policy rate cut in December to 5.25 per cent, following 100bp of cuts in 2025 so far, and a series of reductions in the cash reserve ratio (from 4 per cent to 3 per cent)," Fitch said.

RBI's monetary policy committee is slated to announce its policy review on Friday.

With core inflation recovering and activity projected to remain strong, Fitch said that it expects the RBI to have reached the end of its easing cycle, and that rates will remain at 5.25 per cent over the next two years.