Fitch Ratings said India’s domestic demand will remain the main engine of growth this year, with consumer spending and investment projected to rise by 8.6% and 6.9%, respectively, in the current fiscal year.
Also Read: India’s Q3 FY26 GDP growth slows sequentially to 7.8% under new series; FY26 estimate rises to 7.6%
“There are tentative signs that real activity is slowing in January and February, for example in the PMI surveys, but the economy remains resilient and credit growth is still in double digits,” Fitch said in its March 2026 Global Economic Outlook. “We expect growth to slow in 1HFY26/27; rising inflation will constrain real incomes, limiting consumer spending growth.”
India’s gross domestic product (GDP) growth slowed to 7.8% in the third quarter of fiscal year 2026, compared with 8.4% in the previous quarter. The figure, however, came in higher than the 7.4% estimate in an ET poll, following the reset of the GDP base year to 2022–23. Growth for FY26 has meanwhile been revised to 7.6%, up from 7.1% recorded a year earlier.
India has also updated its GDP series by adopting 2022–23 as the new base year, replacing 2011–12, along with revised historical data and back-series.
World economic growth forecast amid Iran war
Meanwhile, global economic growth is likely to remain steady this year as long as the recent spike in oil prices does not persist for long, according to Fitch.Fitch said the world economy has shown resilience despite a series of geopolitical tensions and policy shocks from the United States. Global growth came in at 2.7% last year, broadly in line with its long-term average. Assuming the latest jump in oil prices proves temporary, Fitch expects global growth to slow only slightly to 2.6% in 2026, an upward revision from the 2.4% forecast in its December GEO.
Fitch Ratings expects the global economy growth 2.6% in 2026, assuming the war involving Iran does not cause a major or long-lasting rise in energy prices that pushes the average oil price for 2026 above $70 per barrel.
Fitch Ratings said strong investment in AI, large government deficits in the US and China, and higher spending by Americans due to gains in the stock market helped reduce the impact of higher US tariffs last year. However, it expects consumer spending in the US to slow in 2026 because a weaker labour market may reduce household income. At the same time, the US government deficit is widening again.
Fitch now expects the US economy to grow by 2.2% in 2026. This is slightly higher than its earlier forecast of 2% made in January and is the same as last year’s growth rate. As for China, Fitch expects its economy to slow to 4.3% from 5% in 2025, dragged down by weakening consumer spending growth while export growth is projected to ease.
India’s economy a bright spot
India’s economy has remained one of the few bright spots in the global landscape over the past few months, supported by resilient domestic demand, robust services activity and sustained public investment in infrastructure.
High-frequency indicators, ranging from GST collections and manufacturing output to air travel and digital payments, have pointed to steady momentum even as exports face headwinds from slowing global trade. Policymakers see growth holding above 7% this fiscal year, though economists say the durability of that pace will hinge on a pickup in private capital expenditure and whether rural consumption strengthens after a patchy recovery, particularly as higher oil prices and geopolitical tensions threaten to add new pressure on inflation and external balances.
Rising tensions in West Asia and the resulting swings in oil prices could cloud India’s economic outlook, with higher crude costs likely to drag on growth, HDFC Bank had said.
Also Read: Every 10% rise in oil prices could shave 20–25 bps off India’s GDP growth, says HDFC Bank
India’s economy projections
Fitch said investment growth is likely to slow in the short term in India but should recover from the second half of FY26/27 as financial conditions ease and real interest rates decline. The government’s budget expects public capital spending to increase broadly in line with nominal GDP growth.
Weaker domestic demand is likely to reduce imports, which could result in a positive contribution from net trade to overall growth. At the same time, a lower US effective tax rate following the US Supreme Court ruling, along with Section 122 blanket tariffs, may provide some support to external demand, it added.
Overall, GDP growth is projected to slow to 6.7% in FY26/27 and further to 6.5% in FY27/28. These forecasts have been revised up by 0.3 percentage points from the December Global Economic Outlook.
India’s inflation estimate
Fitch also said headline inflation has started to gain pace after dropping last autumn due to lower food prices. It reached 2.7% in January, up from 1.2% in December. Inflation is expected to increase gradually to about 4.5% by December 2026, though it should remain within the RBI’s tolerance band around the 4% target (plus or minus 2%). However, if oil prices stay high for a long time, inflation could rise faster than expected.
The monetary policy committee of the Reserve Bank of India kept the policy rate unchanged at 5.25% in February and maintained a neutral policy stance. Interest rates are expected to stay at this level through this year and next.