Ind-Ra lowers India's FY26 GDP forecast to 6.3% amid global headwinds

Fibre2Fashion

a day ago

India Ratings and Research (Ind-Ra) has lowered its GDP growth forecast for fiscal 2026 (FY26) to 6.3 per cent year-on-year (YoY), down 30 basis points (bp) from its earlier estimate of 6.6 per cent issued in December 2024. The revision reflects the evolving macroeconomic landscape shaped by geopolitical shocks and uneven domestic momentum, with the economy navigating a mixed bag of headwinds and tailwinds.
'Major headwinds are: i) uncertain global scenario from the unilateral tariff hikes by the US for all countries and ii) weaker-than-expected investment climate. The major tailwinds are: i) monetary easing, ii) faster-than-expected inflation decline, and iii) likely above-normal rainfall in 2025,' said Dr. Devendra Kumar Pant, chief economist and head – public finance at Ind-Ra.
The downgrade also mirrors a bleak global environment: the IMF has trimmed its 2025 global GDP forecast to 2.8 per cent, while the World Bank projects an even lower 2.3 per cent expansion. Global trade volume is now expected to rise only 1.8 per cent in 2025, sharply below earlier forecasts and historical trends, the domestic rating agency noted.
Retail inflation is expected to average just 3 per cent in FY26, down from 4.6 per cent in FY25 and well below the Reserve Bank of India's 4 per cent target. Food inflation turned negative in June 2025, contributing to the lowest CPI reading in over six years. With 100bp of rate cuts already delivered between February and June 2025, Ind-Ra sees room for an additional 50bp cut in the current easing cycle, possibly aided by CRR reductions.
Commodity prices—both energy and non-energy—are expected to remain subdued in 2025 and into 2026-2027, limiting export momentum and further clouding India's external outlook.
Private final consumption expenditure (PFCE) is projected to rise 6.9 per cent in FY26, sustaining its momentum from FY25 (7.2 per cent). The pick-up is attributed to easing inflation and improving real wages, although the growth remains tempered by a drop in household savings and increased personal loan obligations. The savings rate fell to 18.1 per cent in FY24 (from 20.1 per cent in FY22), while rising loan burdens have reduced disposable incomes.
'While low inflation augurs well for consumption demand, monetary easing is likely to ease pressure on loan repayments, and better monsoon is likely to translate into brighter agriculture prospects, thus supporting rural demand. However, the combined impact of tailwinds is unlikely to fully alleviate the adverse impact of the strong headwinds,' noted Paras Jasrai, associate director at Ind-Ra.
Gross fixed capital formation (GFCF) growth is forecast to slow to 6.7 per cent in FY26, down from 7.1 per cent in FY25. A better-than-expected investment uptick in FY25, global capex hesitancy, and weak manufacturing sector outlook are dampening prospects. While sectors like logistics, renewables, and commercial real estate may sustain capex growth, others like garments and chemicals could see cutbacks.
Ind-Ra expects the trade deficit to widen to $325.1 billion in FY26, up from $287.2 billion in FY25. However, strong remittances and a services surplus are likely to contain the current account deficit at 0.9 per cent of GDP. The basic external balance (current account plus net FDI) is set to deteriorate to a deficit of $34.5 billion, while the INR is likely to depreciate by 2.8 per cent against the USD.
India Ratings has cut India's FY26 GDP forecast to 6.3 per cent from 6.6 per cent amid global trade uncertainty and weak investment climate. While low inflation, monetary easing, and a good monsoon support consumption, these tailwinds may not offset global headwinds. Inflation is seen averaging 3 per cent, with further rate cuts possible. Current account deficit is projected at 0.9 per cent of GDP.
Fibre2Fashion News Desk (HU)