India’s GDP growth to exceed 6.5% in FY26, says Icra; rural demand and tax relief seen driving momentum

India’s real GDP growth is expected to exceed 6.5% in FY2025–26, while real Gross Value Added (GVA) growth is likely to surpass 6.3%, according to a new outlook released by rating agency Icra on Tuesday.In its report, the agency cited rural demand, income tax relief, and lower EMIs as key factors that would support economic expansion over the fiscal.On the inflation front, Icra projected the Consumer Price Index (CPI) to remain above 4.2%, while the Wholesale Price Index (WPI) is estimated at over 2.7% in the current financial year, PTI reported.The agency also forecast India’s fiscal deficit at 4.4% of GDP, while the current account deficit (CAD) is projected at –1% of GDP for FY26.Icra noted that rural demand is likely to remain upbeat, supported by Rabi cash flows and above-normal reservoir levels. Additionally, income tax cuts announced in the Union Budget 2025–26, combined with the expectation of interest rate cuts and moderating food inflation, are likely to increase household disposable income.While services exports are expected to outpace merchandise exports, Icra maintained a cautious outlook on India’s goods trade, stating that merchandise exports may remain tepid in the near term.In terms of investment, the report pointed to a 10.1% increase in the Centre’s capital expenditure budgeted for FY26, which is likely to spur public investment activity.However, Icra said that private sector capital expenditure may see only limited traction, given the uncertain trade policy environment and muted export outlook.