India's current account deficit to widen in FY26, GDP to grow by 6.5 per cent: Crisil

The report suggests that lower inflation and expected rate cuts by the Reserve Bank of India (RBI) will support growth, provided there are no major global shocks and India experiences a normal monsoon.

It said "Lower inflation and the RBI's rate cuts are expected to lift growth next fiscal, assuming a normal monsoon and lower crude oil prices".

Crisil's outlook highlights that while government spending will continue to support economic growth, the overall fiscal impulse will reduce as fiscal consolidation progresses. A key factor influencing growth will be private sector investments, which need to pick up momentum.

However, global trade challenges, particularly tariff hikes by the United States, could create obstacles for exports.

Consumer Price Index (CPI) inflation is projected to ease further from 4.7 per cent in FY25 to 4.4 per cent in FY26. This decline will be driven by expectations of a normal monsoon, a high base effect in food inflation, and softer global commodity prices.

However, non-food inflation might see a slight rise due to an adverse base effect. If inflation moves closer to the RBI's target of 4 per cent, it could provide more room for rate cuts, further boosting economic activity.

The report also added that India's fiscal deficit, which stood at 5.6 per cent of GDP in FY24, is expected to decline to 4.8 per cent in FY25 and further to 4.4 per cent in FY26. This will be made possible by controlled revenue spending while maintaining a strong focus on capital expenditure.

On the external front, the current account deficit (CAD) is likely to widen from 1.0 per cent of GDP in FY25 to 1.3 per cent in FY26 due to export headwinds from U.S. trade policies. Despite this, a strong services trade balance, steady remittances, and lower crude oil prices will help prevent a sharp increase in the deficit.

The Indian rupee is expected to depreciate gradually, averaging Rs 86 per dollar in FY25 and Rs87 per dollar in FY26. While the CAD remains under control, global geopolitical uncertainties could lead to volatility in the currency markets.

Crisil's projections indicate that India's economy will continue to grow steadily, supported by lower inflation and monetary easing by the RBI. However, challenges such as weak exports and the need for stronger private investments could influence overall growth momentum. (ANI)