Fitch Ratings has increased India’s GDP growth forecast for the year 2025-26 to 7.4 percent, earlier this estimate was 6.9 percent. The biggest reason for this is that people’s expenditure (private consumption) is increasing faster than expected. On December 4, Fitch Ratings said that the real strength of India’s economy this year is private consumers’ spending.
People’s income is increasing, and the recent changes made in GST have also boosted purchasing by making goods cheaper. This is the reason why GDP grew at a pace of 8.2 percent in the second quarter, which is the fastest pace in the last one and a half years. In view of this strong momentum, Fitch increased the growth forecast for the full year 2025-26 from 6.9 percent to 7.4 percent.
What will be the biggest factors?
Fitch has also estimated that growth will slow down slightly to 6.4 percent in 2026-27, which is close to the country’s normal potential. Domestic demand, especially private consumer spending, will still be the biggest factor. Major investment by the government will reduce now, but due to easing of interest rates in the second half of 2027, private investment will start increasing. Growth will further slow down to 6.2 percent in 2027-28 because the pace of domestic demand will be slightly suppressed due to more goods coming from outside.
Economy will get a new boost
Apart from this, Fitch Ratings has also warned that India is facing the world’s highest tariff i.e. about 35 percent on selling its goods in America. If there is a new trade agreement between India and America and these heavy tariffs are reduced, our exports will benefit greatly and orders from foreign countries will increase. Currently, this high tariff makes our goods expensive in America, due to which there are fewer buyers. Fitch says that with such an agreement, there will be a good increase in external demand and the economy will get a new boost.
This is the estimate of inflation
Talking about inflation, Fitch feels that the average inflation this year will be only 1.5 percent, but it will increase to 4.4 percent in the next year 2026-27. In October, retail inflation had fallen to only 0.3 percent. The reason for this is the base effect i.e. due to high inflation last year, it is less this year. Inflation will exceed the RBI’s 4 percent target by the end of 2026, and will decline only slightly in 2027. This means that things may become a little expensive again in the coming years.
Fitch says that due to low inflation, RBI will get scope for another rate cut in December, that is, it can bring the repo rate up to 5.25 percent. This year there has already been a reduction of 100 basis points and the cash reserve ratio of the bank has also been reduced from 4 percent to 3 percent. But core inflation is increasing slightly and growth will also remain strong, hence Fitch feels that the process of reducing RBI’s rates will almost end now and interest rates will remain stable for the next two years.
According to the report, economists are warning that the rupee is continuing to weaken and is about to touch 90, making it difficult to cut rates immediately, especially when growth has been so strong in the second quarter. The Monetary Policy Committee of RBI will give its decision tomorrow on 5th December, now everyone’s eyes are on it. Fitch expects the rupee to strengthen slightly to around Rs 87 per dollar next year, whereas earlier they had estimated 88.5 for 2025. This means that there is hope for a slight improvement in our currency against the dollar.
