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The Indian economy will grow slightly faster than previously expected this fiscal year, a Reuters poll showed, as economists raised their forecasts for the second consecutive month following a surprise 7.8% expansion in the April to June quarter.
That unexpected growth, along with the country’s Goods and Services Tax (GST) cut around the festive season to boost consumer demand, have prompted most economists in the October 15-24 survey to revise down their full-year forecasts from last month or leave them unchanged.
While the punitive 50% tariff imposed by the US on Indian goods is still in place, recent comments from Washington and New Delhi have raised optimism that it will be reduced.
According to the average forecast of more than 40 economists, GDP growth this fiscal year was projected to average 6.7%.
That’s slightly above the 6.6% estimate in last month’s Reuters poll, and a notable upgrade from the 6.3% estimated in August before April-June quarter growth figures were stronger than expected.
Tariffs offset domestic tax policy benefits
Still, a solid 68% majority of economists, 34 out of 50, expect the RBI to cut interest rates by 25 bps in December after keeping the repo rate at 5.50% earlier this month. In the September survey, a slight majority predicted no change.
The change comes after the central bank signaled in October that lower inflation had opened up policy space to support growth. The survey also showed that inflation will average 2.5% this fiscal year and rise to 4.2% next year.
Surveys of arbitrageurs kept rates on hold until at least the first half of 2027 after an anticipated rate cut this December.
“Monetary and fiscal policy support for growth and the performance of the rural economy have prompted our assessment to slightly revise down our GDP growth number for the year,” said Sakshi Gupta, principal economist at HDFC Bank.
All but one of the 21 economists who responded to an additional question said that in the coming year, the economy is likely to grow faster rather than slower than anticipated.
The survey predicts GDP growth of 6.5% in the next fiscal year and the year after that.
Abhishek Upadhyay, senior economist at ICICI Securities PD, said: “The big headwind… was actually the higher tariffs imposed by the US, which was seen as offsetting the GST gains. But if this headwind subsides then growth in the second half of the year could be even stronger than our current expectation.”
Private investment concerns remain
While the recent tax cuts may provide some relief to Indian households, doubts remain whether they will be enough to revive private investment – a key driver of job creation for the millions of people who join the country’s workforce every year.
The Trump administration’s continued changes on India have increased uncertainty, reducing investors’ confidence in injecting fresh capital into the world’s fastest-growing major economy.
“Whenever there is uncertainty, the most affected segment across the entire GDP spectrum is investment, and that is what is happening. So once the uncertainty goes away, we may see private investment also coming back,” said Kanika Pasricha, chief economic advisor, Union Bank of India.
“GST reforms… may see impact with a lag to address the demand issue, given that overall global uncertainty is also curbing capital expenditure recovery.”