Fitch Ratings has raised India’s FY26 GDP forecast to 7.4 percent and the upgraded India GDP outlook reflects sustained consumer demand and the positive impact of ongoing GST reforms. The revision strengthens India’s position as one of the fastest growing large economies despite global uncertainty.
The new forecast suggests that India’s domestic consumption engine remains resilient. Rising urban spending, expanding formal employment and stable inflation have supported purchasing power. Meanwhile, GST compliance improvements and expanding tax collections have strengthened fiscal capacity, allowing for continued investment in infrastructure and public services. Together, these factors create a more durable growth foundation heading into FY26.
Consumer demand remains the primary growth driver for India’s economy
Consumer demand continues to anchor India’s growth trajectory. Urban incomes have benefited from strong services sector hiring, increasing activity in retail trade and the continued rise of online commerce. Semi urban markets, supported by better connectivity and regional product expansion, also contributed to demand strength.
Fitch noted that easing inflation provided consumers with more spending flexibility. Lower inflation in food and essential goods improved real income conditions, especially for lower and middle income households. Consumer confidence surveys have shown steady improvement throughout the year, indicating optimism about future earnings and consumption.
The automobile sector, consumer electronics and organised retail chains reported firm sales, reflecting broad based demand. These trends offer an important buffer in an environment where several global economies continue to face weakened household spending.
GST reforms and tax buoyancy strengthen fiscal stability
GST reforms have contributed meaningfully to economic efficiency and revenue stability. Improved compliance through technology based monitoring and stronger enforcement has expanded the tax base. Monthly GST collections consistently remained at elevated levels, providing states and the central government with more predictable financial resources.
Fitch highlighted that higher tax buoyancy allows space for capital expenditure, which remains a pillar of India’s economic strategy. Infrastructure investments across highways, logistics corridors, renewable energy and digital infrastructure have supported job creation and private sector confidence.
The simplification of GST processes and onboarding of more small businesses into the formal ecosystem also improve long term productivity. As supply chains become more integrated and transparent, costs reduce and competitiveness rises, which supports both domestic consumption and exports.
External environment challenges persist but India remains relatively insulated
Global growth remains uneven due to geopolitical tensions, tight financial conditions and inflation related disruptions. Several large economies are experiencing slower industrial activity and reduced trade volumes. Fitch noted that these external factors pose risks to emerging markets, especially those dependent on commodity exports or large external borrowing.
India, however, benefits from a more balanced economic structure. With domestic demand driving a large share of GDP, the country is relatively insulated from global downturns. Services exports remain a strong performer, supported by IT, business process management and digital services. These segments have shown resilience even during global slowdowns.
At the same time, India’s external position continues to be supported by healthy forex reserves and moderate current account pressures. This stability enhances investor confidence and reduces vulnerability to external shocks.
Investment momentum and credit growth support medium term outlook
Investment activity has continued to recover, supported by public sector capital expenditure and gradual improvement in private sector participation. Large corporations have increased spending in manufacturing, logistics and technology driven expansion plans. The government’s production linked incentive schemes have also encouraged capacity building in electronics, pharmaceuticals, textiles and clean energy.
Credit growth remains strong, particularly in retail and MSME segments. Banks have strengthened their balance sheets after several years of asset cleanup, enabling them to expand lending more aggressively. The availability of credit supports business formation, housing investment and consumer purchases that contribute to GDP growth.
Fitch emphasised that maintaining policy stability and investment continuity will be essential for sustaining momentum into FY26. Robust growth also depends on continued attention to labour market participation, skill development and export competitiveness.
Takeaways
Fitch upgraded India’s FY26 GDP forecast to 7.4 percent
Consumer demand and easing inflation remain core growth drivers
GST reforms improved compliance and strengthened fiscal capacity
India stays relatively insulated from global volatility due to strong domestic fundamentals
FAQs
Why did Fitch raise the GDP forecast for FY26
Fitch revised the forecast due to stronger than expected consumer demand, easing inflation and improved GST collections that enhanced fiscal capacity and economic stability.
How do GST reforms support economic growth
GST reforms broaden the tax base, improve compliance and increase revenue predictability. This enables higher government investment in infrastructure and public services, which fuels long term growth.
Is India affected by global economic slowdown
India is affected indirectly but less severely than many countries. Strong domestic demand, services exports and healthy forex reserves help reduce vulnerability to external shocks.
What risks could impact the FY26 growth outlook
Key risks include global financial volatility, commodity price fluctuations and weaker private sector investment if borrowing costs rise unexpectedly.
