Fitch Ratings has revised India's FY2026-27 GDP growth forecast upwards to 6.9%, citing robust private investment. Despite an expected moderation in the latter half of the year, growth has been stronger than anticipated, reaching 8.6% in Q1 2026.

India’s economic growth is expected to moderate over the remainder of the financial year, but private investment is likely to remain a key support, with Fitch Ratings raising its FY2026-27 GDP growth forecast to 6.9 per cent from 6.4 per cent earlier in its latest report.

The report said growth had remained stronger than expected, with GDP expanding 8.6 per cent year-on-year in the first quarter of 2026, or the fourth quarter of FY2025-26, compared with 7.7 per cent in the previous quarter.

Growth slowed to 7.8 per cent in the second quarter but remained above the rating agency’s earlier expectations.

Factors Influencing Growth Trajectory

The agency expects growth to moderate in the rest of FY2026-27, citing slower expansion in manufacturing and services, below-normal monsoon rains that could weigh on agriculture and rural demand, and rising inflation that could constrain real incomes and consumer spending.

However, private investment prospects have become more positive. Fitch expects investment to rise by more than 10 per cent, while non-food credit growth reached 19 per cent year-on-year in July.

Economic Projections: GDP, Inflation, and Policy Rates

Overall, it expects GDP growth of 6.9 per cent in FY2026-27, followed by 6.5 per cent in FY2027-28.

Inflation is expected to remain a key factor for the economy and monetary policy. Headline inflation rose from 1.2 per cent in December 2025 to 4.8 per cent in August, while core inflation increased from 3 per cent to 4.2 per cent. Fitch expects headline inflation to rise further to 5.5 per cent by December this year before easing to 4.2 per cent by end-2027 and 4 per cent by end-2028.

Against this backdrop, the agency expects the Reserve Bank of India to raise its policy rate by 25 basis points in October to 5.5 per cent, followed by another increase to 5.75 per cent in early 2027. It expects rates to ease to 5.5 per cent in 2028.

The agency also expects the rupee-dollar exchange rate to remain close to current levels for the rest of 2026, with a slight depreciation expected in 2027.

Global Economic Outlook

Globally, Fitch raised its 2026 world GDP growth forecast to 2.6 per cent from 2.4 per cent in June, citing stronger-than-expected economic activity despite this year’s energy price shock.

Growth forecasts for 2027 and 2028 were retained at 2.5 per cent and 2.6 per cent, respectively.

The global outlook, however, is accompanied by expectations of higher interest rates. Fitch expects the US Federal Reserve to raise rates again in December and hold them at 4.25 per cent next year, while higher real policy rates are expected to keep global bond yields elevated.

Fitch also flagged risks from elevated equity valuations and a possible pullback in AI-related investment, while persistent inflation pressures could lead to faster rate increases in the US.

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