India's Economic Engine Stays Strong with 6.5-6.7% Growth Forecast
India's economy continues to demonstrate remarkable resilience, with S&P Global Ratings projecting a robust growth trajectory of 6.5% in the current fiscal year (FY26) and an even stronger 6.7% in the following year (FY27). This optimistic outlook comes despite global economic uncertainties and maintains India's position as one of the world's fastest-growing major economies.
Domestic Consumption Fuels Economic Momentum
The rating agency highlighted that India's real GDP expanded by an impressive 7.8% during April-June, marking the fastest growth pace witnessed in five quarters. Official GDP figures for the July-September quarter are scheduled for release on November 28, providing further insight into the economy's performance. S&P emphasized in its Economic Outlook Asia-Pacific report that strong domestic consumption continues to be the primary driver supporting this economic momentum, with risks to their projection evenly balanced.
The Reserve Bank of India has set its own growth forecast at 6.8% for the current fiscal year, showing improvement from the previous year's 6.5% growth. This alignment between domestic and international assessments underscores the economy's underlying strength.
Policy Measures Boosting Consumer Spending
A combination of strategic fiscal and monetary measures is expected to significantly bolster consumption-led growth in the coming years. The government's Budget for FY26 made a substantial move by raising the income-tax rebate limit to Rs 12 lakh from Rs 7 lakh, providing approximately Rs 1 lakh crore in relief to the middle class. This significant tax cut is poised to increase disposable income and stimulate consumer spending.
Complementing these fiscal measures, the RBI cut policy rates by 50 basis points in June, bringing them to a three-year low of 5.5%. Additionally, from September 22, GST rates were reduced on approximately 375 items, making mass-consumption goods more affordable for the average consumer. These coordinated efforts are expected to shift the growth dynamic, with consumption playing a larger role than investment in both FY26 and FY27.
Navigating Global Trade Challenges
While domestic indicators remain strong, S&P noted that elevated US tariffs continue to pose challenges for India's export-oriented manufacturing sector. However, there are early indications that Washington might consider lowering duties on some Indian products. The agency observed that the revised US trade policy approach is compelling governments and firms to focus on securing exemptions, which diverts resources from productivity-enhancing initiatives.
S&P emphasized that securing a comprehensive trade agreement with the United States would help reduce uncertainty and boost confidence, particularly for labor-intensive sectors that are crucial for employment generation. As India navigates these global trade dynamics while strengthening domestic consumption, the economy appears well-positioned to maintain its strong growth path over the next two years.
