Fitch Ratings has revised its GDP growth forecast for India for FY26 to 7.4%, up from its earlier estimate of 6.9%. The upgrade has been driven by stronger consumer spending and an improvement in overall sentiment, aided by recent GST rate cuts.
The credit rating agency noted that GDP momentum picked up further in Q2FY26, rising to 8.2% from 7.8% in Q1FY26. “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 December Global Economic Outlook report.
Main factors driving the growth
According to Fitch, the FY26 growth is primarily being led by an increase in private consumer spending, supported by strong real income dynamics, improving sentiment, and lower prices across several categories following GST rate cuts.
The GST reforms, implemented in September 2025, reduced prices on over 375 items. Nearly 99% of all goods were moved into the zero, 5%, or 18% tax brackets, with just 1% of items attracting the highest 40% tax rate.
Adding to the positive momentum, India’s retail inflation (based on the consumer price index) plunged to a historic low of 0.03% in October, largely due to softer prices in food and beverages. “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.
For FY27, the rating agency expects growth to slowdown to 6.4%.
Fitch expects RBI to cut rates this month
Fitch expects the RBI to deliver a quarter-point rate cut at the ongoing MPC meeting. “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),” it reiterated.
After this cut, Fitch expects the policy rate to remain unchanged at 5.25% for over two decades, citing a likely recovery in core inflation and continued strength in growth activity
