New Delhi [India], July 23 : India Ratings and Research (Ind-Ra) has slashed India's GDP projections for 2025-26 to 6.3 per cent, a 30 basis points lower than its earlier forecast of 6.6 per cent in December 2024.
Real GDP growth for 2025-26 is projected at 6.5 per cent by the RBI in the June MPC meeting.
The rating agency cited that an uncertain global scenario from the unilateral tariff hikes by the US for all countries and weaker-than-expected investment climate as the major headwinds.
The major tailwinds, according to Ind-Ra, are monetary easing, faster-than-expected inflation decline, and likely above-normal rainfall in 2025, said Devendra Kumar Pant, Chief Economist and Head Public Finance, India Ratings and Research.
Ind-Ra, while forecasting the 2025-26 growth at 6.6 per cent in December 2024, had also assigned a key risk of tariff war and any capital outflow.
Low inflation, monetary easing, and so far favourable monsoons have brightened the scope for a continued economic recovery in 2025-26, and they are likely to minimise the impact of strong headwinds emanating from the uncertain global scenario.
"While low inflation augurs well for consumption demand, monetary easing is likely to ease pressure on loan repayments, and better monsoon is likely to translate into brighter agriculture prospects, thus supporting rural demand. However, the combined impact of tailwinds is unlikely to fully alleviate the adverse impact of the strong headwinds", says Paras Jasrai, Economist and Associate Director, Ind-Ra.
As was widely expected, the Indian economy grew by 6.5 per cent in real terms in the recently concluded financial year 2024-25, official data showed recently. As was widely expected, the Indian economy grew by 6.5 per cent in real terms in the recently concluded financial year 2024-25, official data showed recently.
In 2023-24, India's GDP grew by an impressive 9.2 per cent, continuing to be the fastest-growing major economy.
According to official data, the economy grew 8.7 per cent and 7.2 per cent, respectively, in 2021-22 and 2022-23.
Coming back to Ind-Ra report, it noted that the pace of monetary easing in 2025 has been faster than its expectations. However, the tariff hikes by the US have increased the global economic uncertainty, leading to slower growth for both global demand and trade.
"This has led to investors adopting a wait-and-watch mode before taking decisions on greenfield expansion," the rating agency said.
Ind-Ra expects retail inflation to average 3.0 per cent in 2025-26 as against a forecast of 4.3 per cent (2024-25: 4.6 per cent).
Retail inflation fell to a 77-month low of 2.1 per cent in June 2025, staying below the 4 per cent mark (RBI's inflation target) for the fifth consecutive month.
The drop was due to a sharp fall in food inflation to negative 1.1 per cent in June 2025 from 10.9 per cent in October 2024.
According to Ind-Ra, better-than-normal rainfall and benign global commodity prices are keeping inflation in check.
Ind-Ra expected a 100-125 basis points rate cut in the current interest rate easing cycle, with 100 basis points already implemented between February and June 2025.
"The inflation decline has exceeded the RBI's and market expectations. To encourage savings, the real repo rate must be positive, with 125-150 bp previously considered significant. With the inflation projected to average 3.0 per cent in 2025-26, a substantial near-term monetary easing by the RBI seems unlikely. The inflation outlook for 2026-27 and beyond will influence the RBI's decision on rate cuts. Ind-Ra believes there is scope for an additional 50 basis points rate cut in the current cycle. Also, a CRR cut and expected monetary easing of up to 150 basis points will be significant for maintaining stable economic growth," Ind-Ra added.
RBI had in June projected CPI-based retail inflation for the financial year 2025-26 at 3.7 per cent.