Indian economy to grow 6.5% in FY26 : Crisil

New Delhi: India’s economy is set to grow at a steady 6.5% in fiscal 2026, driven by strong domestic demand, despite global headwinds including geopolitical uncertainties and US-led trade actions, Crisil forecast on Thursday.

According to its latest India Outlook report (FY26), Crisil said the projection assumes a normal monsoon and stable commodity prices with key drivers including cooling food inflation, tax benefits announced in the budget and lower borrowing costs, which are expected to boost consumption.

While growth is stabilizing at pre-pandemic levels as fiscal support normalizes and the high-base effect fades, high-frequency Purchasing Managers Index (PMI) data shows India continues to lead among major economies, the report added.

Drivers of growth

Crisil expects India’s manufacturing sector to grow at an average of 9% per year between FY25 and FY31, up from 6% in the pre-pandemic decade.

Manufacturing’s share in the GDP is projected to rise to 20% by FY31, supported by investments and efficiency gains, with services remaining the primary growth engine, though at a slower pace.

“India’s resilience is being tested again. Over the past few years, we have built a few safe harbours against exogenous shocks — healthy economic growth, low current account deficit and external public debt, and adequate forex reserves — which provide ample policy latitude,” said Amish Mehta, Managing Director & CEO, Crisil Ltd.

“So, while the waters can turn choppy, consumption-led rural and urban demand will be crucial to short-term growth. On the other hand, continuing investments and efficiency gains will aid in the medium term. We foresee both manufacturing and services supporting growth through fiscal 2031,” Mehta added.

Inflation and monetary Policy

Inflation softened in FY25 due to lower non-food inflation, though food prices remained elevated. Crisil expects food inflation to decline further in FY26, pulling headline inflation down.

With fiscal consolidation and easing inflation, the Reserve Bank of India (RBI) is expected to cut policy rates by 50-75 basis points in the next fiscal, the agency said adding that the pace of US Federal Reserve rate cuts and weather-related risks could influence the timing.

However, Crisil expects India’s current account deficit (CAD) to rise slightly in FY26, as goods exports face headwinds from the US-led tariff war and weak global demand, though robust services exports and strong remittances are likely to cushion the impact.

“India has continued to raise its growth premium over advanced countries through infrastructure buildout, and economic reforms including process improvement. Healthy GDP growth, a low current account deficit and adequate forex reserves provide buffer and policy flexibility, but do not insulate the country from external shocks,” said Dharmakirti Joshi, chief economist, Crisil Ltd.

“The risks to the growth forecast of 6.5% are therefore titled to the downside given elevated uncertainty due to the US-led tariff war,” he added.

Higher revenue growth

Crisil expects corporate India’s revenue growth to rise to 7-8% year-on-year in fiscal 2026, up from around 6% in fiscal 2025, approaching the decadal average of about 8% recorded between fiscal 2016 and fiscal 2025, primarily driven by a strong performance in consumption sectors.

“The leg-up to private consumption — which accounts for more than 55% of the country’s GDP — from a reduction in taxes, as announced in the budget, can offer some support to capex by improving domestic demand and creating conditions for fresh investments,” it said.

“For one, urban demand is expected to look up, especially in categories related to middle-income households. For instance, in automobiles, the expected volume growth for two-wheelers is much higher compared with passenger cars, where the target buyers are largely from the high-income category,” it added.

According to Crisil, despite pricing pressures in commodity sectors, corporate profitability is set to improve, with EBITDA margins rising 50 basis points in FY26, nearing decade-high levels.

Capex and emerging sectors

Industrial capital expenditure is gaining momentum, supported by higher capacity utilization, strong corporate balance sheets, and the Production-Linked Incentive (PLI) scheme.

Crisil projects industrial capex to rise from ₹4.3 trillion per year (FY21-FY25) to ₹7.1 trillion by FY30, with emerging sectors like electric vehicles, semiconductors, and electronics accounting for 23% of capex between FY26 and FY30.

While, India is bolstering its manufacturing sector through investments in infrastructure, technology, skills, and market access, supported by initiatives like Make in India and the PLI scheme, scaling up and integrating into global value chains may face headwinds amid rising trade tensions.

However, Crisil cautioned that trade uncertainties and technology access challenges could hinder export growth, despite a stronger domestic base.