India’s economic growth forecast has been revised upward as Fitch Ratings raised its estimate to 6.9% for the current fiscal year, from an earlier projection of 6.5%.
The revision comes after India’s real GDP grew by 7.8% in the April–to-June quarter, surpassing expectations and marking an acceleration from the 7.4% growth seen in the previous three months.
The revision in economic growth also comes after the government introduced changes in the goods and services tax (GST) just ahead of the festive season.
ROBUST SERVICES AND CONSUMPTION DRIVE GROWTH
Fitch highlighted that stronger-than-expected momentum in the second quarter was mainly driven by robust activity in the services sector and resilient domestic consumption.
The agency mentioned that India’s growth continues to rely heavily on domestic demand. This is supported by strong real income dynamics and relatively easier financial conditions, which have encouraged spending and business activity.
Despite the positive growth, Fitch pointed out that uncertainty around global trade relations could pose risks. The recent imposition of a 25% additional tariff by the United States on Indian imports has created tensions. Fitch expects these tariffs to be negotiated lower in time but warned that this uncertainty could dampen business sentiment and affect investment decisions.
While the first half of the fiscal year showed strong performance, Fitch expects India’s growth to slow down in the coming months. The agency projected that growth will moderate to 6.3% in the second half of the current fiscal year and further slow to 6.2% in the next two fiscal years.
REAL VS NOMINAL GDP CONCERNS
Fitch also raised a cautionary note on the narrowing gap between nominal and real GDP growth. It said that real GDP might be overstated because of unusually low wholesale and commodity prices in recent months. This situation could reverse if price pressures return, affecting overall economic calculations.
India’s retail inflation hit a low of 1.6% in July, the lowest level since June 2017. This was largely due to low food prices and above-average monsoon rainfall. Additionally, core inflation—excluding volatile food and fuel prices—eased below 4% for the first time in six months.
Fitch expects the Reserve Bank of India (RBI) to respond to the current economic environment by cutting key interest rates by 25 basis points later this year. After the cut, the central bank is likely to keep rates steady throughout 2026. The agency expects the RBI to begin tightening monetary policy starting in 2027, depending on inflation and growth trends.
