The Indian economy is ‘somewhat insulated’ from the impact of high US tariffs, Fitch has said in its latest Global Economic Outlook report. Fitch sees the Indian economy growing at 6.5% in the upcoming financial year, with a slight slow down in the subsequent year.
“We expect overall GDP growth of 6.5% in FY25-26 and a slight slowdown in growth in FY26-27, to 6.3%. More aggressive-than-expected US trade policies are an important risk to our forecast, though India is somewhat insulated given its low reliance on external demand,” Fitch said in its report.
Economic growth rebounded to 6.2% in 4Q24 compared to 5.4% in 3Q24, supported by increased private and public expenditure, including investment spending. Agricultural contribution has strengthened throughout the fiscal year, benefiting from favourable monsoon conditions that enhanced kharif crop yields, notes the report.
India GDP growth forecast
Fitch expects India’s GDP growth to strengthen further in 1Q25, aligning with its projection of 6.3% growth for the fiscal year ending March 31, 2025 (FY24-25).
Corporate sentiment remains optimistic, with banking surveys indicating sustained double-digit expansion in private sector credit. The Union Budget maintains substantial public infrastructure investment, whilst maintaining a broadly neutral stance on growth. These elements, combined with reduced capital costs, support Fitch’s forecast of increased investment activity for FY25-26 and FY26-27.
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Consumer sentiment has shown a slight decline recently, accompanied by a notable reduction in automobile purchases. However, declining inflation rates will enhance real income levels, whilst employment indicators from official sources and PMI surveys suggest steady job creation and workforce participation growth, Fitch noted.
India GVA – Contributions to growth
Additionally, the budget’s revisions to tax-free allowances and tax brackets will increase disposable incomes. These factors will sustain consumer expenditure, though at a more modest pace than the current year.
“Moreover, the budget raised tax-free income allowances and revised tax brackets, which will raise posttax incomes. These factors will support consumer spending growth, albeit at a slower rate than this year,” Fitch said.
India’s GDP growth has benefited from net exports this year, driven by robust export performance and decreased imports. This trend is expected to stabilise, with net exports likely to have a neutral impact on growth during FY25-26 and FY26-27, it added.
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Consumer price inflation decreased to 3.6% in February from January’s 4.3%, primarily due to reduced food price inflation. Food price trends in upcoming months are expected to facilitate a gradual reduction in headline inflation to 4.0% by end-2025, followed by a modest increase to 4.3% by December 2026.
CPI & Policy rate prediction
The RBI initiated monetary easing in early February, reducing the repo rate by 25bp to 6.25%. Two additional policy rate reductions are anticipated this calendar year, with the rate projected to reach 5.75% by December 2025, adjusted downward from the previous GEO’s forecast of 6.25%, Fitch concluded.