India's GDP to grow 6.3% in FY26, says Ind-Ra

India Ratings and Research (Ind-Ra) expects India’s GDP growth to be 6.3% year-on-year (YoY) in FY26, slightly lower than its earlier forecast of 6.6% made in December 2024.

The credit rating and research agency said the moderation in economic growth is likely because of the uncertain global scenario arising from the unilateral tariff hikes by the US for all countries and a weaker-than-expected investment climate. The major tailwinds are monetary easing, a faster-than-expected inflation decline, and likely above-normal rainfall in 2025, Devendra Kumar Pant, Chief Economist and Head of Public Finance at Ind-Ra, said.

Major growth drivers are expected to be monetary easing and capital expenditure (capex). The pace of monetary easing in 2025 has been faster than our expectations. However, the tariff hikes by the US have increased the global economic uncertainty, leading to slower growth for both global demand and trade, Ind-Ra said in a statement.

Low inflation, monetary easing, and favourable monsoons so far have brightened the scope for a continued economic recovery in FY26, and they are likely to minimise the impact of strong headwinds emanating from the uncertain global scenario, it said.

“While low inflation augurs well for consumption demand, monetary easing is likely to ease pressure on loan repayments, and a better monsoon is likely to translate into brighter agriculture prospects, thus supporting rural demand. However, the combined impact of tailwinds is unlikely to fully alleviate the adverse impact of the strong headwinds,” Paras Jasrai, Economist & Associate Director, Ind-Ra, says.

The agency expects investment demand, i.e., gross fixed capital formation (GFCF), to grow 6.7% YoY in FY26, slower than its earlier forecast of 7.2% (FY25: 7.1%). The major reasons are higher-than-expected investment growth in FY25 (7.1% vs. a forecast of 6.7%), weakness in manufacturing, and sluggish global demand, it said.

“The government investment demand was a major GFCF growth driver. Sectors such as telecom, chemicals, and garment exporters may face a capex slowdown in FY26. Sectors such as oil and gas and real estate in metro areas are likely to have flat capex growth in FY26. Sectors such as power (thermal as well as renewables), transmission and distribution, and logistics and warehousing may see a continuation of capex growth momentum. Commercial and retail real estate are likely to see a continuation in capex in FY26 as well,” Pant said.

Ind-Ra expects consumption demand to remain stable. Private final consumption expenditure (PFCE) is likely to grow 6.9% YoY in FY26, consistent with its earlier forecast. “The stable PFCE growth forecast emanates from a decline in retail inflation, leading to positive real wage growth for most categories of wage earners,” Pant said.