India’s GDP Growth Forecast Lowered to 6.2% for FY26 by ICRA, Down from 6.5% in FY25

India’s economic growth outlook has been revised downward for the financial year 2025–26 by ICRA. The credit rating agency has highlighted a range of macroeconomic indicators impacting this revision, including inflation trends, capital expenditure and trade performance.

GDP Growth Forecast Revised to 6.2% for FY26

ICRA has lowered its projection for India’s real GDP growth to 6.2% in FY26, compared to 6.5% in FY25. This moderation is attributed to evolving domestic and global macroeconomic dynamics. The outlook reflects a cautious stance amid global trade challenges and inflationary pressures.

Alongside GDP, the growth in Real Gross Value Added (GVA) is also forecast to reduce to 6%, down from 6.4% in the previous fiscal year. These estimates signal a tempering of economic momentum as India enters the new financial cycle.

Inflation Trends and Price Indices

The Consumer Price Index (CPI) is expected to stay above 3.5%, indicating persistent pressure on retail prices. Meanwhile, the Wholesale Price Index (WPI) is forecast to be over 1.8%, maintaining a moderate pace.

These projections imply ongoing vigilance from monetary authorities, with inflationary expectations likely to influence policy stance and interest rate movements in the short term.

Fiscal and Current Account Deficit Outlook

ICRA has pegged the fiscal deficit at 4.4% of GDP for FY26. This figure reflects the Centre's commitment to fiscal consolidation while maintaining spending momentum through infrastructure and social schemes.

The current account deficit is expected to range between 1.2% and 1.3%, consistent with controlled import growth and stable service exports. These indicators point to a relatively balanced external sector position, barring fluctuations in global trade flows.

Domestic Demand and Rural Economy

Rural demand is projected to remain strong, supported by favourable Rabi season cash flows and above-normal reservoir levels. This trend is likely to contribute to consumption stability in non-urban regions.

Additionally, income tax reliefs in the Union Budget for FY26, along with lower loan EMIs due to interest rate cuts and easing food prices, are expected to increase household disposable income and stimulate spending capacity.

Trade Uncertainties and Private Capex  

India’s merchandise exports are anticipated to remain subdued, driven by tepid global demand and continuing trade uncertainties. However, services exports are likely to outperform goods exports, maintaining a positive balance for the external trade sector.

The Central Government has budgeted a 10.1% increase in capital expenditure for FY26. This rise in public investment is expected to energise infrastructure projects and sustain capital formation. In contrast, private capital expenditure might grow at a slower pace due to trade policy uncertainties and cautious corporate outlooks.

Rise in Unemployment Adds to Growth Concerns

Amid these macroeconomic pressures, India’s unemployment rate rose to 5.6% in May 2025, up from 5.1% in April, according to data from the Periodic Labour Force Survey (PLFS) by MoSPI. This upward trend in joblessness adds another layer of concern to the country’s economic outlook.

What’s Driving the Job Market Slump?

The rise in unemployment is attributed to a blend of seasonal, structural, and demand-side factors. In rural India, employment often dips during early summer months like May due to reduced demand for agricultural labour between sowing and harvesting seasons.

In urban areas, a slowdown in hiring across manufacturing and services has become apparent, with companies holding back on capital expenditure amidst global uncertainty and weak export prospects. As a result, job creation remains muted, further constraining household consumption and amplifying the slowdown in economic activity.

Read More: India’s Unemployment Rate Climbs to 5.6% in May 2025! 

Conclusion

ICRA’s outlook for FY26 suggests a modest slowdown in India's economic growth, from 6.5% to 6.2%. Inflationary pressures, global trade challenges and varying investment momentum are likely to shape the economic landscape. Fiscal indicators remain within a manageable range, with government spending poised to support investment and consumption.

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