India Ratings and Research (Ind-Ra) has projected the Indian economy to grow at 6.6% in the fiscal year 2025-26, a slight increase from the 6.4% growth forecast for the current fiscal year. The ratings agency expects investments to be a key driver of this growth, similar to the trends observed in fiscal years 2022 and 2024.
Ind-Ra also noted that the Indian economy has experienced a cyclical slowdown in growth over the past three quarters. However, it anticipates a reversal of this trend starting from the December quarter. The agency highlighted that while the growth trajectory up to FY’24 had been impacted by the lingering effects of the COVID-19 pandemic, as well as base effects, the challenges faced in FY’25, particularly in the June quarter, were driven by a combination of strong base effects and the general elections in May 2024. Additionally, the July-September period saw weaker growth due to a slowdown in private sector capital expenditure.
Despite these challenges, Ind-Ra remains optimistic about the outlook for FY26, though it cautions that the economy continues to face tight monetary, fiscal, and external conditions. While it expects monetary policy to ease, fiscal and external tightening is anticipated to persist in FY26. Ind-Ra projects that India’s GDP growth in FY26 will be on par with the best growth rate recorded in the previous decade (FY11-FY20).
Devendra Kumar Pant, Chief Economist and Head of Public Finance at Ind-Ra, noted, “Nonetheless, the FY26 GDP growth is expected to be same as India’s best decadal growth.”
The agency has forecast retail inflation in FY26 to average 4.4%, an improvement from the 4.9% forecast for FY25. However, it warned that growth and inflation projections could be influenced by external factors, such as a potential tariff war or capital outflows if the US dollar continues to strengthen.
Ind-Ra also projected a merchandise trade deficit of USD 308 billion for FY26, an increase from the deficit of USD 277.4 billion expected in FY25, and USD 244.9 billion in FY24.
The timing of any rate cuts by the Reserve Bank of India (RBI) will depend on how various factors, including the Union Budget for FY26, the inflation trajectory, and evolving domestic and global economic conditions, align with the RBI’s flexible inflation targeting approach.
