International credit rating agency Crisil on Monday projected India's GDP growth at 6.5 percent in financial year 2026, while warning that risks, especially from US tariff hikes, tilt to the downside.
Crisil expects the Reserve Bank of India's monetary relaxation steps to offset some of the external pressures on the economy.
As a result, "Interest rate cuts, tax rate reductions, and decelerating inflation" are expected to spur consumption this fiscal year, while a normal monsoon would sustain. agricultural revenues.
Moreover, a potential economic slowdown in the world economy is also expected to cause crude oil prices to fall, which in turn should support domestic growth prospects further.
Yet the volatility in the duration and periodic tinkering of US tariffs is still a major risk to FY26 GDP growth prospects, as these aspects may suppress investment activity.
Reflecting on the past FY25, Crisil reported that the second half witnessed better output of capital, infrastructure, and construction goods, which reflected stabilization of construction and capital spending activity towards the end of the year.
Other high-frequency economic indicators also point to a better growth outlook in the last quarter.
The Reserve Bank of India's most recent Quarterly Industrial Outlook survey indicated improving demand in Q4 FY25.
Furthermore, the RBI’s Consumer Confidence Survey showed improvements in both rural and urban areas in March, supporting the view of a rebound in domestic demand. Healthy rabi crop output and easing inflation in the final quarter are expected to further encourage consumption, the report added.
On the industrial side, the Index of Industrial Production (IIP) accelerated at 2.9 percent in February from 5.2 percent in January (revised from 5.0 percent), led largely by lower performance in the manufacturing and mining industries. Electricity generation was up.
"On average, the fourth quarter through February IIP growth was 4.0 percent, tracking closely with the 4.1 percent seen during the earlier quarter," Crisil said.
With eleven months of data available for FY25, Crisil noted that manufacturing IIP performed better in the second half of the year. This was supported by increases in core segments like petroleum products, machinery, and textiles.
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