India's GDP projected to grow 6.5% in FY26, 6.3% in FY27: Fitch

While more aggressive-than-expected US trade policies pose a risk to its forecast, India is somewhat insulated due to its low reliance on external demand, the report noted.

Consumer confidence has edged down in recent months. The rise in tax-free income allowances and revised tax brackets in the Union Budget will raise post-tax incomes and support consumer spending growth, albeit at a slower rate than this year.

Terming the budget as ‘broadly neutral’ for growth, the rating agency said it expects a pickup in capital spending over the next two fiscals.

“Business confidence remains high, and lending surveys point to continued double-digit growth in bank lending to the private sector… These factors—together with a reduction in the cost of capital—underpin our expectation of a pickup in capital spending for FY26 and FY27,” the report stated.

The country’s real GDP growth slowed to 5.4 per cent in the third quarter last year before rebounding to 6.2 per cent in Q4.

Lower inflation will boost real incomes, while labour market indicators suggest steady employment growth and increased participation.

“Net exports have supported GDP growth this year due to a combination of strong export growth and falling imports. We expect this to normalise so that net exports’ contribution to growth will be broadly neutral over FY26 and FY27,” Fitch Ratings said.

The rating agency expects two more policy rate cuts this year, revising the forecast downwards to 5.75 per cent by December 2025.

ALCHEMPro News Desk (DS)