Indian economy: GDP growth to dip at 6.2% in FY26; rural demand, tax relief to aid economy

India’s economic momentum may lose a touch of pace, with the GDP growth slipping down from 6.5%, as per the latest outlook by leading rating agency ICRA.

The agency revised its real GDP growth projection for 2025-26 to 6.2 per cent, down from the estimated 6.5% in the preceding financial year.

Real Gross Value Added (GVA) growth is also expected to soften, easing to 6% from 6.4% previously, PTI cited the report

On the inflation front, ICRA anticipated the Consumer Price Index (CPI) to remain above 3.5 per cent, while the Wholesale Price Index (WPI) is expected to hover over 1.8 per cent during the current fiscal.

The outlook also predicted rural demand to stay resilient, lifted by healthy Rabi season cash flows and above-normal reservoir levels.

The report highlighted that a mix of policy support, particularly sizeable income tax relief in the Union Budget for 2025-26, potential rate cuts lowering EMIs, and easing food inflation, could boost household disposable incomes and support consumption.

ICRA has pegged the fiscal deficit for 2025-26 at 4.4% of GDP. The current account deficit is forecast to stay between 1.2% and 1.3%.

India’s services exports are likely to outshine merchandise trade, which are expected to remain weak in the near term, ICRA said.

While the Centre’s capital expenditure is budgeted to grow by 10.1% over the current fiscal, which will drive up investment activities.

With exports facing a weak outlook and trade policy uncertainties persisting, the report noted that private capital spending might also see some momentum.