MUMBAI: Fitch Ratings has raised its forecast for India’s economic growth for the current fiscal year to 6.9% from 6.5% earlier, citing stronger-than-expected momentum in the June quarter driven by robust services activity and resilient consumption.
India’s real GDP grew 7.8% year-on-year in the April–to-June quarter, accelerating from 7.4% in the previous three months and beating Fitch’s projection of 6.7%.
Domestic demand will remain the key growth driver, supported by strong real income dynamics and looser financial conditions, Fitch said a note on Tuesday.
Uncertainty around trade relations could dampen business sentiment and investment amid rising trade tensions with the United States, which recently imposed an additional 25% tariff on Indian imports, Fitch said, adding that it expects the rates to be negotiated lower.
The agency expects growth to moderate in the second half of the fiscal year and slow to 6.3% and 6.2% in the next two fiscal years.
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Fitch also flagged the narrowing gap between nominal and real GDP growth and said real GDP may be overstated due to weak wholesale and commodity prices, which could reverse if price pressures return.
India’s headline retail inflation fell to 1.6% in July, the lowest since June 2017, driven by low food prices and above-average monsoon rainfall.
Core inflation also eased below 4% for the first time in six months.
Fitch expects the Reserve Bank of India to cut rates by 25 basis points later this year and hold them steady through 2026, before beginning to tighten policy in 2027.
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