Fitch raises India FY27 GDP forecast to 6.9%; sees RBI rate hike as inflation rises

Fitch Ratings on Wednesday raised its forecast for India’s GDP growth in FY27 to 6.9% from 6.4%, citing stronger-than-expected economic activity and resilience despite the external shock from the US-Iran conflict. The upgrade comes after the Indian economy expanded 7.8% in the April-June quarter, prompting the rating agency to reassess the pace at which growth could moderate through the rest of the financial year.

Fitch, however, expects economic momentum to lose some pace in the coming quarters as manufacturing and services activity moderates, below-normal monsoon rainfall weighs on agriculture and rural demand, and higher inflation begins to pressure household purchasing power. Against this backdrop, the agency expects the Reserve Bank of India (RBI) to raise its policy rate by 25 basis points to 5.5% in October.

Investment, credit growth provide support

The growth outlook is being supported by a stronger investment cycle. Fitch expects fixed investment to increase 10.6% in FY27, compared with 8% in FY26. Non-food credit growth also accelerated to 19% year-on-year in July, pointing to stronger financing activity across the economy. Consumer spending, however, is expected to moderate, with growth projected at 5.7% in FY27 against 7.2% in the previous fiscal year.

Fitch said the 7.8% June-quarter expansion demonstrated the economy’s ability to absorb the deterioration in its terms of trade during the first half of 2026. It nevertheless flagged slower PMI readings for manufacturing and services and weak monsoon conditions as constraints on the growth outlook.

Inflation turnaround puts RBI back in focus

Inflation has emerged as a key consideration for monetary policy. Headline inflation rose from 1.2% in December 2025 to 4.8% in August, while core inflation increased from 3% to 4.2%. Fitch expects headline inflation to reach 5.5% by December before easing to 4.2% by end-2027 and 4% by end-2028.

Fitch expects another 25-basis-point rate increase to 5.75% in early 2027, followed by a reduction to 5.5% in 2028. It projects GDP growth at 6.5% in both FY28 and FY29, with consumption and investment remaining important growth drivers as the energy shock fades.

The 6.9% FY27 projection remains below the 7% forecasts recently issued by S&P Global Ratings and Moody’s Ratings, but marks a sharp improvement from Fitch’s earlier 6.4% estimate. (With inputs from PTI)