India’s GDP growth is expected to remain steady at 6.5% in FY26, according to a new report by Crisil, even as the global environment presents significant headwinds for exports and capital flows.
The report highlights that rate cuts, healthy monsoon, soft inflation, and tax relief will support domestic consumption and rural demand, but warns of external drag from slowing global trade and rising tariffs on Indian goods — especially the 50% US import duty on certain exports.
Domestic drivers: Consumption outlook strengthens
The forecast points to several tailwinds for the Indian economy in FY26:
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Rate Cuts: The RBI is expected to cut policy rates again this year, thanks to continued soft inflation trends.
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Liquidity Boost: A planned 100-bps cut in the cash reserve ratio (CRR) between September and December will further ease financial conditions.
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Rural Support: Healthy kharif sowing (up 2.9%) and subdued food inflation will support rural incomes and consumption.
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Lower Lending Rates: The 1-year MCLR eased to 8.6%, reflecting the lagged impact of monetary easing since February.
Crisil notes that these factors should keep private consumption steady, helping offset weak global demand.
Risks from capital flows, rupee volatility and trade
However, downside risks persist. Crisil’s report outlines the following challenges:
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Volatility in capital inflows may pressure the rupee, particularly amid global geopolitical and financial uncertainty.
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Export growth is expected to drag GDP, especially with high tariffs and slowdowns in key markets like the US and EU.
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Some agricultural yields may be affected by excess rainfall, potentially affecting rural growth in certain regions.
Despite these risks, the overall macroeconomic environment remains supportive of growth, with inflation staying well below the RBI’s 4% target for six consecutive months.
Credit growth strengthens, industry and services gain traction
Bank credit growth stood at 10% YoY in August, higher than the 9.6% average in Q1. Segment-wise trends show:
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Services credit rose to 10.6% in July
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Agriculture credit increased to 7.3%
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Industrial credit grew to 6%, suggesting gradual recovery in capital expenditure
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Personal loans remained stable at 11.9%
This momentum indicates that credit transmission is improving, especially for MSMEs and sectoral borrowers in services and agriculture.
Outlook: Stable growth, space for further easing
Crisil maintains that while the GDP outlook is stable, there’s still room for 25–50 bps monetary easing in H2 FY26, depending on inflation trends and demand revival.
For MSMEs, this environment could translate into:
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Easier access to working capital
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Lower borrowing costs
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Stronger rural and services sector demand
The report concludes that moderate WPI and CPI inflation, combined with soft global commodity prices and GST relief measures, could support real GDP growth without overheating the economy.