India’s Economy To Grow 6.5% In FY26, Says Crisil; Strong Monsoon, Rate Cuts, And Capex Drive Outlook

India’s economy is projected to expand by 6.5% in the current fiscal year, according to a revised forecast by rating agency Crisil.

Expectations of an above-normal monsoon, monetary easing, and increased government spending aimed at rural development support the outlook.

The India Meteorological Department anticipates a strong southwest monsoon, with rainfall expected to reach 106% of the long-period average in FY26.

This is likely to enhance agricultural productivity and encourage greater discretionary spending, the report stated.

Crisil also foresees another interest rate cut this fiscal, which will likely stimulate domestic consumption further.

The Reserve Bank of India has already lowered rates by 100 basis points in its current easing cycle, leading to reduced lending rates by banks.

Investment-related production has seen an upswing, bolstered by a surge in public capital expenditure.

Central government capex jumped 38.7% in May (nominal terms), while major states saw a combined increase of 44.7% year-on-year for the same month.

Infrastructure and construction goods output grew by 6.3% in May, compared to 4.7% previously, showing solid performance in investment-driven sectors.

Private consumption supported by budget measures

Private consumption will likely benefit from income tax relief and the rollout of rural support measures outlined in the fiscal 2026 budget, the agency noted.

However, the report flagged potential risks from rising global trade barriers.

The US is likely to impose reciprocal tariffs starting July 9, which could weigh on India’s goods exports.

Additionally, ongoing global economic uncertainty may dampen private investment.

On the industrial front, the Index of Industrial Production (IIP) recorded a year-on-year growth of 1.2% in May, a drop from 2.6% in April and the slowest pace since August 2024.

Weaker performance in the electricity and manufacturing sectors contributed to the decline.

While investment-related goods remained resilient, sectors tied to consumer demand, electricity, pharmaceuticals, chemicals, and textiles saw lower output. Export-oriented industries showed varied performance trends.

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