India’s GDP growth pegged at 6.6% for FY26 on investment boost: India Ratings

New Delhi: India Ratings and Research on Wednesday said that the country’s economic growth is likely to accelerate to 6.6% in the financial year starting 1 April, from 6.4% it has projected for FY25.

Devendra Kumar Pant, chief economist and head, public finance, for India Ratings and Research, told reporters that the Reserve Bank of India’s (RBI) interest rate cut would depend on whether food inflation is under control.

“The rate cut would be 100-125 basis points,” said Pant, “But it would be data dependent.”

A basis point is one-hundredth of a percentage point.

India Ratings and Research “believes the Indian economy is facing monetary, fiscal and external tightening. While it expects monetary conditions to ease now, the fiscal and external tightening is expected to continue in FY26 as well,” said Pant.

The ratings company’s forecast would be impacted by any tariff war, any capital outflow, and if the dollar continued to strengthen, Pant said.

The rating agency has forecast a 6.4% gross domestic product (GDP) growth for FY25, 20 basis points lower than the RBI’s 6.6% estimates. For the first and second quarters of FY26, India Ratings and Research projected a growth of 6.7% and 7%, respectively, while the RBI’s estimates are 6.9% and 7.3%.

In FY26, investment growth is expected to be higher than consumption growth, as per the India Ratings and Research forecast. Gross fixed capital formation (GFCF), a measure of investment in the economy, will increase 7.2% in FY26, India Ratings and Research projected, higher than its FY25 estimates of 6.7%. The rating agency said that the government and the private sector will both contribute to investments in FY26, and that private sector investments are not broad-based, but concentrated in a few sectors such as roads, airports, renewable energy, etc.

India’s growth, however, faces a clear challenge in weak consumption. It estimated India's private final consumption expenditure (PFCE) to grow at 6.9% in FY26, compared to 6.7% in FY25. Both these estimates are substantially higher than 4% PFCE growth in FY24.

PFCE growth assumes importance as it is the largest component of the GDP. Its proportion in GDP has declined over the years and was at a six-year low of 55.8% in FY24.

Government final consumption expenditure (GFCE) growth, on the other hand, is expected to be muted at 4.3% in FY26, as both central and state governments are committed towards fiscal consolidation.

India Ratings estimated the country’s growth in gross value added (GVA) to be 6.6% for FY26, banking on growth in the services sector. In FY26, the services sector will have a GVA rise of 7.4%, while industrial sector would have a GVA of 6.6%, both considerably higher than the GVA of 3.4% for the agriculture sector.

The rating agency also said inflation would touch 4% in FY26, the RBI’s midpoint of the retail inflation range of 2-6%. Its estimates differed from the RBI’s—the central bank said inflation would reach 4% by the second quarter of FY26, while India Ratings said it would dip to that level in the third and fourth quarters of FY26 also.

The central government is likely to stay on its path of fiscal consolidation and achieve a fiscal deficit of 4.5% in FY26, backed by a nominal GDP growth of 10.2%, and a 10% rise in corporate tax, income tax, and goods and service tax (GST) collections, along with ₹25,000 crore expected from asset sales. Other factors that would keep the government on its fiscal deficit glide path are revenue expenditure growth of 8.1% and a capex growth of 10%.