New Delhi [India], September 10 (ANI): Global rating agency Fitch has revised India's growth outlook for the fiscal year ending March 2026 to 6.9 per cent from its earlier projection of 6.5% in June Global Economic Outlook (GEO).

'Domestic demand will be the key driver of growth, as strong real income dynamics support consumer spending and looser financial conditions should feed through to investment' noted the report.

The upgrade follows a sharper-than-expected acceleration in the pace of activity between the first and second quarter of FY25.

However, the report adds that economic momentum of the country is likely to slow in the second half of the current financial year as the economy is operating slightly above its potential.

'annual growth will slow in the second half of the financial year, and so we expect growth to slow in FY27 to 6.3%. With the economy operating slightly above its potential, we expect growth will edge down to 6.2% in FY28' adds the report

According to the report, India's real GDP growth rose to 7.8 per cent year-on-year in 2Q25, compared to 7.4 per cent in 1Q25. This was well above Fitch's earlier forecast of 6.7 per cent in the June GEO.

The acceleration was driven mainly by stronger service sector growth, which rose to 9.3 per cent year-on-year from 6.8 per cent in the previous quarter. On the expenditure side, both private and public consumption spending contributed significantly to the expansion.

At the same time, Fitch highlighted challenges from external pressures. Trade tensions with the United States have risen in recent months, with Washington imposing an additional 25 per cent tariff on imports from India.

While the report expects these tariffs to eventually be negotiated lower, the uncertainty surrounding trade relations is likely to weigh on business sentiment and potentially dampen investment activity.

On inflation, Fitch said low food prices have helped push headline inflation down to 1.6 per cent in July, the lowest level since June 2017. Core inflation also fell below 4 per cent for the first time in six months.

Regarding monetary policy, Fitch expects the Reserve Bank of India (RBI) to cut rates by 25 basis points towards the end of the year, while monitoring the effects of previous policy loosening. Rates are expected to remain at this level until end-2026, before the RBI begins raising them again in 2027. (ANI)