India’s economy is poised to grow at 6.5 percent in the financial year 2025-26 (FY26), slightly surpassing the 6.4 percent growth forecast for the current fiscal year, according to a recent report by Crisil.
The report underscores that a combination of lower inflation and anticipated rate cuts by the Reserve Bank of India (RBI) will support economic growth, assuming there are no major global shocks and the country experiences a normal monsoon.
“Lower inflation and the RBI’s rate cuts are expected to lift growth next fiscal, assuming a normal monsoon and lower crude oil prices,” the report said.
While government spending will continue to be a key growth driver, Crisil highlighted that the fiscal impulse will weaken as fiscal consolidation advances. A critical factor for sustaining growth would be the revival of private sector investments, which need to gain momentum.
Export prospects, however, face headwinds due to global trade challenges, including tariff hikes by the United States.
On the inflation front, Consumer Price Index (CPI) inflation is projected to decline from 4.7 percent in FY25 to 4.4 percent in FY26, largely due to favorable monsoon expectations, a high base effect in food inflation, and softer global commodity prices. Nevertheless, non-food inflation may see a slight uptick due to an adverse base effect.
If inflation approaches the RBI’s target of 4 percent, it could pave the way for further rate cuts, potentially boosting economic activity.
India’s fiscal deficit, which stood at 5.6 percent of GDP in FY24, is expected to decrease to 4.8 percent in FY25 and further to 4.4 percent in FY26. This improvement will be driven by controlled revenue spending while maintaining a strong emphasis on capital expenditure.
On the external front, the current account deficit (CAD) is expected to widen from 1.0 percent of GDP in FY25 to 1.3 percent in FY26, primarily due to export challenges linked to U.S. trade policies. Despite this, a strong services trade balance, steady remittances, and lower crude oil prices are anticipated to limit the deficit’s expansion.
The Indian rupee is projected to depreciate gradually, averaging Rs 86 per dollar in FY25 and Rs 87 per dollar in FY26. Crisil warned that geopolitical uncertainties could lead to currency market volatility despite the CAD remaining under control.
(Inputs from ANI)
