India’s economy is expected to grow at 6.5% in the financial year 2025-26 (FY26), slightly higher than the 6.4% growth estimated for the ongoing fiscal year (FY25), according to a report by Crisil.
The report suggests that lower inflation and expected rate cuts by the Reserve Bank of India (RBI) will support growth, provided there are no major global shocks and India experiences a normal monsoon. It said “Lower inflation and the RBI’s rate cuts are expected to lift growth next fiscal, assuming a normal monsoon and lower crude oil prices”.
Crisil outlook highlights that while government spending will continue to support economic growth, the overall fiscal impulse will reduce as fiscal consolidation progresses. A key factor influencing growth will be private sector investments, which need to pick up momentum. However, global trade challenges, particularly tariff hikes by the United States, could create obstacles for exports.
What Else Did Crisil Predicted?
Consumer Price Index (CPI) inflation is projected to ease further from 4.7% in FY25 to 4.4% in FY26. This decline will be driven by expectations of a normal monsoon, a high base effect in food inflation, and softer global commodity prices.
However, non-food inflation might see a slight rise due to an adverse base effect. If inflation moves closer to the RBI’s target of 4%, it could provide more room for rate cuts, further boosting economic activity. The report also added that India’s fiscal deficit, which stood at 5.6% of GDP in FY24, is expected to decline to 4.8% in FY25 and further to 4.4% in FY26. This will be made possible by controlled revenue spending while maintaining a strong focus on capital expenditure.
On the external front, the current account deficit (CAD) is likely to widen from 1.0% of GDP in FY25 to 1.3% in FY26 due to export headwinds from U.S. trade policies. Despite this, a strong services trade balance, steady remittances, and lower crude oil prices will help prevent a sharp increase in the deficit.
The Indian rupee is expected to depreciate gradually, averaging Rs 86 per dollar in FY25 and Rs87 per dollar in FY26. While the CAD remains under control, global geopolitical uncertainties could lead to volatility in the currency markets.
Crisil’s projections indicate that India’s economy will continue to grow steadily, supported by lower inflation and monetary easing by the RBI. However, challenges such as weak exports and the need for stronger private investments could influence overall growth momentum.
