Investment ‘to drive growth to 6.6% in FY26’
The Indian economy is set to grow by 6.6% in 2025-26, up from 6.4% in the current fiscal year, according to figures from India Ratings and Research (Ind-Ra).
Ind-Ra believes investments will be a key growth driver for the Indian economy in FY26, mirroring the economy’s performances in FY22 and FY24.
Official figures show that the Indian economy has experienced a cyclical growth slowdown in the first three quarters of FY25, which it expects to reverse from the December quarter. Until FY24, GDP growth was impacted by the continuing effects of the Covid-19 pandemic and the subsequent global economic downturn.
While the June quarter GDP growth of FY25 was impacted by the combination of a strong base effect and the general elections in May 2024, the growth in the July-September period witnessed the extended impact of weak private sector capital expenditure.
Ind-Ra believes that the Indian economy is facing monetary, fiscal, and external tightening. While it expects monetary conditions to ease now, the fiscal and external tightening is expected to continue in FY26 as well, the agency said.
Devendra Kumar Pant, Chief Economist and Head Public Finance, Ind-Ra, commented: “Nonetheless, the FY26 GDP growth is expected to be same as India’s best decadal growth (FY11-FY20).”
Ind-Ra said growth and inflation forecast could, however, be affected by any tariff war in 2025.
The ratings agency said it expects retail inflation in FY26 to average at 4.4%, lower than FY25 forecast of 4.9%.
Merchandise trade is expected to remain in deficit of $308 billion in FY26 (FY25 $77.4 billion; FY24 $244.9 billion), Ind-Ra said.
Strong end to 2024 as business growth reaches four-month high
India’s private sector output grew at the fastest pace in four months, preliminary readings from a survey showed, helping the economy end 2024 on a positive note underpinned by sturdier demand in services and manufacturing and record jobs growth.
Asia’s third-largest economy grew a softer 5.4% last quarter, but easing inflation is expected to spur demand among private sector firms, improving the outlook for next year.
December’s India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 60.7 in the final month of 2024 – matching August’s reading – after dropping to 58.6 in November.
A score of 50 separates growth from contraction and the business activity index has been above 60 in all but three months of 2024. Such strength hasn’t been seen since 2008 when the global financial crisis hit, suggesting strong private sector expansion, according to the S&P Global report accompanying the survey results.
“The small rise in the headline manufacturing PMI in December was mainly driven by gains in current production, new orders and employment,” said Ines Lam, economist at HSBC. “The expansion in new domestic orders quickened, suggesting a pick-up in growth momentum in the economy.”
A stronger rise in demand was mainly reflected in the PMI for the dominant services sector, which rose to a four-month high of 60.8 from 58.4 in November, while the index for manufacturing was 57.4, up from 56.5 last month.
Service providers led the rise in sales with the new business sub-index touching the highest since January. Improving international demand for goods and services also boosted sales with the former recording a faster increase than the latter.
That improved the business outlook for 2025 and overall optimism rose to its highest since September last year and prompted companies to ramp up hiring additional staff at the fastest pace since the survey began in late 2005.
Both manufacturing and services posted a new peak for employment generation.
Inflationary pressures eased in December after two consecutive months of steeper rises. However, firms again increased selling prices albeit at a slower pace than November’s near 12-year high, the report added.
