Ind-Ra expects Indian economy to grow 6.6% YoY in FY26

“The Indian economy has experienced a cyclical growth slowdown in the past three quarters, which it expects to reverse from 3Q [the third quarter] FY25….Ind-Ra believes the Indian economy is facing monetary, fiscal and external tightening. While it expects monetary conditions to ease now, the fiscal and external tightening is expected to continue in FY26 as well,” Devendra Kumar Pant, chief economist and head of public finance at Ind-Ra, said in a release.

“Nonetheless, the FY26 GDP growth is expected to be same as India’s best decadal growth (FY11-FY20),” he noted.

Ind-Ra’s growth and inflation forecast could however be affected by any tariff war, and any capital outflow, if the dollar continues to strengthen.

Ind-Ra expects investments to be a key growth driver in FY26, like in FY22 and FY24. Gross fixed capital formation (GFCF) is projected to increase by 7.2 per cent YoY in FY26. It expects both the government and private sectors to contribute towards the GFCF growth in FY26.

The general elections in Q1 FY25 and its lingering impact on investment activities in Q2 are mainly responsible for the weak GFCF growth in FY25. The private sector capex is still not broad-based and concentrated in a few sectors like roads, airports and renewable energy.

Private sector participation in capital expenditure is important for sustainable economic growth and may alleviate some pressure on the government deficit, Ind-Ra observed.

The domestic rating agency expects private final consumption expenditure (PFCE) to grow by 6.9 per cent YoY in FY26. An issue with India’s growth pattern in recent times is weak consumption growth.

Ind-Ra expects government final consumption expenditure (GFCE) growth to remain muted at 4.3 per cent in FY26.

The GFCE-to-GDP ratio in FY24 declined to 10.4 per cent. Ind-Ra expects it to decline further to 10.3 per cent in FY26.

The agency expects gross value added (GVA) growth in FY26 to be 6.6 per cent. The industrial sector growth is expected to improve to 6.6 per cent in the fiscal. Although prima facie this appears weak, it is better than the average 5.6-per cent growth during FY14-FY24, Ind-Ra added.

Retail Inflation is expected to touch 4 per cent in Q3 FY26, and average around 4.4 per cent in the full fiscal.

Ind-Ra expects the Indian government to adhere to its FY26 fiscal deficit target of 4.5 per cent of GDP

Merchandise trade account is expected to remain in deficit of $308 billion in FY26.

ALCHEMPro News Desk (DS)