Indian Economy Projected To Grow 6.6% In FY26: Report

The Indian economy has recently experienced a cyclical slowdown over the past three quarters, but Ind-Ra anticipates a reversal starting from the December quarter

Ind-Ra further noted that the Indian economy is currently grappling with tightening in monetary, fiscal, and external conditions

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India Ratings and Research (Ind-Ra) has forecasted that the Indian economy will experience a growth rate of 6.6 per cent in the fiscal year 2025-26. This marks an increase from the projected growth rate of 6.4 per cent for the current fiscal year, highlighting a positive outlook for the country's economic expansion in the coming year, according to the latest analysis from Ind-Ra.

Ind-Ra believes that investments will be crucial in driving the Indian economy’s growth in FY26, similar to their contribution in FY22 and FY24. The Indian economy has recently experienced a cyclical slowdown over the past three quarters, but Ind-Ra anticipates a reversal starting from the December quarter.

The GDP growth up until FY24 was affected by the lingering impacts of the Covid-19 pandemic, with base effects also influencing quarterly GDP growth figures. While the GDP growth in the June quarter of FY25 was impacted by a combination of a strong base effect and the general elections held in May 2024, the growth in the July-September period continued to reflect the extended effects of weak private sector capital expenditure.

Ind-Ra further noted that the Indian economy is currently grappling with tightening in monetary, fiscal, and external conditions. While it expects monetary conditions to ease in the near future, the agency predicts that fiscal and external tightening will persist through FY26.

"Nonetheless, the FY26 GDP growth is expected to be same as India's best decadal growth (FY11-FY20)," says Devendra Kumar Pant, Chief Economist and Head of Public Finance, Ind-Ra.

Ind-Ra noted that potential tariff wars or capital outflows could impact its growth and inflation projections, particularly if the dollar continues to strengthen. The agency expects retail inflation in FY26 to average 4.4 per cent, which is lower than its forecast of 4.9 per cent for FY25.

"The timing of rate cut would depend on how the forthcoming data -- arithmetic of the FY26 Union Budget, inflation trajectory and evolving domestic and global landscape -- gels with the RBI's flexible inflation targeting approach," Ind-Ra said.

Ind-Ra projected that the merchandise trade deficit will remain at $308 billion in FY26, compared to $277.4 billion in FY25 and $244.9 billion in FY24.