India's GDP growth is expected to remain steady at 6.5% during the fiscal year 2025-2026 on the back of hopes of a normal monsoon and calm commodity prices. As per a Crisil report published on Monday, private consumption is expected to pick up, while growth in investment will rely on private capital spending.
The report points out that private consumption is expected to experience a pickup, fueled by robust farm production and easing food inflation. When food prices relax, households might have more available income for discretionary expenditure, thereby supporting economic growth.
In addition, tax relief measures launched in the Union Budget 2025-2026, together with increased investments in employment-intensive and infrastructure projects, are likely to boost consumption. Also, the Reserve Bank of India's (RBI) move towards a more accommodative monetary policy will likely improve discretionary expenditure.
Crisil expects the RBI's Monetary Policy Committee (MPC) to cut the repo rate by 50-75 basis points in fiscal 2026. The recent liquidity steps taken by the central bank and easing of rules for non-banking financial companies (NBFCs) should allow for the transmission of these gains to spread across the economy.
In terms of investment, the report highlights that its expansion will heavily rely on private corporate outlays, especially as the government tones down its capital spending to achieve fiscal deficit targets.
Despite that, threats to economic growth continue, mainly as a result of increased global uncertainties caused by the US-initiated tariff war. Domestic consumption will likely remain solid, but imports will continue to be strong during fiscal 2026. On the other hand, export expansion may be weak because of potential retaliatory tariffs imposed by the US.
The report also cautions that intensifying trade tensions could lead to higher imports from China as a result of redirection of trade.
Referring to official projections, Crisil says GDP growth in 2024-25 is estimated at 6.5%, down from the 9.2% in the last fiscal. But the growth rate is still near the pre-pandemic decade-long average of 6.6% (2011-2020), keeping India the fastest-growing large economy.
GDP is likely to increase at a 7.6% pace in the fourth quarter, driving the overall growth of the current fiscal by 6.5%. Real GDP growth had already picked up to 6.2% year-on-year during the third quarter from the last quarter's 5.6%.
Growth of the agriculture sector picked up on account of uniform monsoon conditions (5.6% vs. 4.1% in the last quarter), while that of the services sector grew steadily at 7.4%.
Private final consumption spending jumped to 6.9% in the third quarter from 5.9% in the last quarter, most probably driven by high demand in the wedding and festive season. Government final consumption spending also picked up significantly, accelerating from 3.8% to 8.3%.
Exports registered a strong rebound, increasing by 10.4% from 2.5% in the last quarter, led mainly by the services sector. Imports, however, fell but at a decelerating rate (-1.1% compared to -2.5%).
The performance of the manufacturing industry during the third quarter was broad-based, as evident from the Index of Industrial Production (IIP). Both construction and infrastructure-linked industries, and consumer-oriented industries, performed better than the second quarter. Further, merchandise exports, which had declined in the last quarter, indicated a pickup.
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