Capex, monetary easing to boost FY26 growth to 6.6%: India Ratings

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The agency said it expects a shallow rate cut from the Reserve bank of India (RBI)

The GDP growth till FY24 was impacted by the after effects of Covid – 19
The GDP growth till FY24 was impacted by the after effects of Covid – 19 | Credits: Fortune India

India Ratings and Research (Ind – Ra) today said that it expected the Indian economy to grow by 6.6% in 2025-26, up 20 basis points over its revised FY25 growth forecast of 6.4%. The agency is of the view that monetary easing and capital expenditure will be key growth drivers of the Indian economy in the next financial year. The agency said it expects a shallow rate cut from the Reserve bank of India (RBI).

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“The Indian economy has experienced a cyclical growth slowdown over the past three quarters, which it expects to reverse from Q3 FY25. The GDP growth till FY24 was impacted by the after effects of Covid – 19, and even the base effect impacted quarterly GDP growth,” said Devendra Kumar Pant, chief economist, India Ratings.

“While Q1 FY25 GDP growth was impacted by a combination of a strong base effect and the general election in May 2024, growth in Q2 FY25 witnessed the extended impact of weak private sector capex. Ind-Ra believes that the Indian economy is facing monetary, fiscal and external tightening. While it expects, monetary condition to ease now, fiscal and external tightening is expected to continue in FY26 as well,” Pant said.

“Nonetheless, the FY26 GDP growth is expected to be same as India’s best decadal growth (FY11-FY20),” Pant added. The agency, however, pointed out that the growth and inflation forecasts could be affected by any tariff war, and any capital outflow if the dollar continues to strengthen.

The agency expects retail inflation in FY26 to average 4.4%. While the RBI expects inflation in Q2 FY26 to reach 4%, Ind-Ra expects the inflation to touch 4% in Q3 and Q4 of FY26 as well. Ind-Ra has factored in a normal rainfall and stable commodity prices in 2025, the agency said in a release.

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On rate cut expectations, the agency said that the cut is likely to be shallow, in the range of 100-125 basis points, during the current easing cycle.

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