Crisil Forecasts Steady 6.5% GDP Growth for India in FY26: Strong Domestic Demand and Inflation Relief Boost Outlook

Key Points

• India’s GDP projected to grow 6.5% in FY26, driven by robust domestic consumption and supportive policy measures
• Global risks from US tariffs identified as the primary threat to growth momentum
• CPI inflation averaged just 2.1% in June—lowest in over six years; expected to settle at 4% for the year
• RBI likely to deliver another repo rate cut, followed by a pause
• Government borrowing and fiscal discipline remain strong, with current account deficit set to rise but stay manageable

New Delhi: India’s gross domestic product (GDP) is expected to grow at a robust 6.5% rate in the current financial year (FY26), according to the latest report released by rating agency Crisil. The positive outlook is underpinned by improved domestic consumption, driven by an anticipated above-normal monsoon, income tax relief, and further support from expected rate cuts by the Reserve Bank of India’s Monetary Policy Committee (MPC).

Crisil specifically highlights mounting global instability especially from new US tariffs and the resulting trade uncertainties—as the biggest external risk to India’s ongoing economic expansion.

Key Growth Drivers

• Domestic Consumption: Healthy agricultural prospects and easing inflation are set to stimulate discretionary spending and private consumption.
• Policy Support: The anticipated repo rate cut and favorable taxation measures are expected to further spur domestic demand.
• Monsoon: An above-normal monsoon, forecast at 106% of the long-period average, will likely boost rural incomes and support GDP growth.
• Government Spending: Increased capital expenditure and a disciplined fiscal path are supporting infrastructure development and public investment.

Quarterly and Annual Growth Trends

• Q4 FY25 GDP Growth: Accelerated to 7.4% year-on-year, up from 6.4% in the previous quarter.
• FY25 (Previous Year): Overall growth held at 6.5% as private consumption and investment showed resilience.

Inflation Breakdown and Outlook

Consumer Price Index (CPI) inflation plunged to 2.1% in June 2025 the lowest level in 77 months primarily due to widespread deflation in food items such as vegetables, pulses, meats, and spices. For the full financial year, CPI inflation is forecast to average 4%, significantly lower than last year’s 4.6%. Favorable agricultural output, subdued global commodity prices, and steady fuel costs are expected to keep inflation in check.

Monetary Policy and Interest Rates

• The RBI MPC is expected to cut the repo rate once more this fiscal year, bringing additional relief to borrowers before pausing further easing.
• Lending rates have already softened following 100 basis points of rate cuts since February.

Fiscal Position and Borrowing

• Gross Market Borrowing: Projected at ₹14.8 lakh crore in FY26, up 5.8% from last year, with 54% of the target earmarked for the first half.
• Fiscal Deficit: As of May, stands at just 0.8% of the annual target a sharp improvement from 3.1% at the same time last year thanks to higher revenue receipts and prudent spending.
• Current Account Deficit (CAD): Expected to average 1.3% of GDP in FY26, compared to 0.6% last fiscal year, remaining within comfortable bounds.

Outlook: Risks and Opportunities

Crisil cautions that while India’s economy is well-positioned for steady growth, global volatility especially from US trade actions and any resurgence in oil prices could pose risks to exports and capital flows. Nonetheless, India is set to maintain its position as the world’s fastest-growing major economy, with domestic consumption and policy support providing a robust safety net.

Summary Table: India’s Economic Indicators FY26 (Projection)

India’s economic momentum is set to continue in 2025–26, with optimism supported by favorable monsoon forecasts, effective policy interventions, and resilient domestic demand.