Indian economy predicted to grow at a faster-than-expected 6.7% this fiscal year: Reuters poll

A recent Reuters poll indicates India's economic growth forecast for the current fiscal year has been upgraded to 6.7%, driven by a stronger-than-expected 7.8% expansion in the April-June quarter and recent Goods and Services Tax (GST) cuts. A majority of economists now anticipate the Reserve Bank of India (RBI) will cut interest rates by 25 basis points in December, with inflation projected at 2.5% this fiscal year. Despite the positive outlook, concerns remain regarding the impact of punitive U.S. tariffs on Indian goods and the slow revival of private investment amidst policy uncertainty.

Analysis

India's economic growth forecast for the current fiscal year has been upgraded to 6.7%, a notable increase from the 6.3% projected in August and 6.6% last month. This upward revision is primarily driven by a stronger-than-expected 7.8% GDP expansion in the April-June quarter and recent Goods and Services Tax (GST) cuts aimed at stimulating consumer demand. The positive outlook is further supported by 20 out of 21 economists expecting faster growth over the coming year, with GDP predicted to grow 6.5% in the next two fiscal years.

A significant shift in monetary policy expectations is evident, with 68% of economists now anticipating a 25 basis point interest rate cut by the Reserve Bank of India (RBI) in December, contrasting with September's poll where a majority expected no change. This change follows the central bank's signal that cooling inflation, projected at 2.5% this fiscal year, has created policy space for growth support. However, rates are expected to remain on hold at least through the first half of 2027 after the anticipated December cut.

Despite the improved growth outlook, significant headwinds persist, particularly the punitive 50% U.S. tariff on Indian goods, which economists view as offsetting domestic tax policy benefits. While optimism exists for a reduction in these tariffs, their continued presence, alongside frequent policy shifts from the U.S., contributes to lingering uncertainty. This uncertainty is notably curbing private investment, a critical driver for job creation, and is seen as a key factor delaying broader capital expenditure recovery.

Key Decisions for Investors

• Investors should consider India's upgraded GDP growth forecast of 6.7% for the current fiscal year, driven by strong Q1 performance and fiscal stimulus, as a potential tailwind for equity markets.
• Monitor the resolution of U.S. tariffs on Indian goods and the trajectory of private investment, as these remain critical factors for sustained economic acceleration and job creation.
• Factor in the high probability of a 25 basis point RBI rate cut in December, which could provide further liquidity and support for economic activity, while noting the expectation of rates holding steady thereafter.