India’s economy will grow a tad faster at 6.6 percent in FY26 compared with 6.4 percent in the current fiscal, as investments emerge as a key driver of growth, India Ratings and Research said at the launch of its “FY2026 Macro Economic Outlook”.
"Ind-Ra believes India 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. Nevertheless, the FY26 growth is expected to be the same as India’s best decadal growth (FY11-20),” said Devendra Kumar Pant, chief economist, Ind-Ra.
The ratings agency was less optimistic about the country’s quarterly growth outlook than the Reserve Bank of India, which pegged FY25 growth at 6.6 percent for the year.
The RBI expects the economy to average 7 percent for the second half of the year after what Ind-Ra describes as a “cyclical slowdown” pushed growth in Q2FY25 to a seven-quarter low of 5.4 percent. The Indian economy grew 6 percent in the first half of the year.
Ind-Ra expects 6.5 percent growth in the current quarter, followed by 7 percent growth in the January-march quarter.
The estimates for the first half of the year at 6.9 percent are also lower than RBI’s estimate of 7.1 percent.
The push, according to the agency, is expected to come from investments, which are expected to rise 7.2 percent in FY26 from 6.7 percent expected in the current fiscal.
Consumption growth will only see a marginal uptick to 6.9 percent from 6.7 percent expected this fiscal.
Consumption growth was a paltry 4 percent in the previous fiscal.
“While better-than-normal rainfall in 2024 and real rural wages turning positive in Q2FY25 have given a boost to rural demand, there are concerns on urban demand,” said the agency.
Agriculture growth will likely taper off in FY26 from 3.8 percent growth expected this year. The industry is expected to perform better on the back of muted performance this year, and services are likely to hold steady.
Inflation inching to 4 percent
While the agency has raised inflation forecast for the current fiscal to 4.9 percent, higher than 4.8 percent projected by the central bank, it was optimistic about the coming year.
It noted that inflation will likely decline to 4.3 percent in FY26. However, it noted that despite a projected decline, the February cut is likely to be more data-dependent.
The Reserve Bank of India held the policy rate for an eleventh consecutive time at its meeting in December.
“Ind-Ra believes the rate cut will be shallow and within 100-125 bps in the current easing cycle,” it noted.
The repo rate currently stands at 6.5 percent.
Ind-Ra was confident of the union government achieving its fiscal roadmap of bringing the deficit down to 4.5 percent by FY26, as it projected a nominal growth of 10.2 percent and a capex growth of 10 percent for the upcoming fiscal year.
While it was also confident of the current account deficit remaining around the 1 percent mark, it expects further depreciation in the rupee with the currency likely settling at Rs 86.87 against the dollar.
The agency, however, noted that a tariff war, capital outflows and the dollar strengthening could further upend growth and inflation dynamics for the coming year.
US president-elect Donald Trump threatened reciprocal tariffs against India, noting that the US would charge 100 percent tariff on Indian imports if India charged high tariffs.
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