India's GDP growth to surpass 6.5% in FY26, driven by Sitharaman's tax cuts: Moody’s

Gross Domestic Product (GDP) growth is projected to exceed 6.5% in the fiscal year ending March 2026, said Moody’s Ratings in its latest Banking System Outlook – India report, released on Wednesday.
The agency attributed this growth to increased government capital expenditure, tax cuts, and interest rate reductions.
Moody’s report highlighted that India’s economy is set to recover from a cyclical slowdown. The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, introduced significant tax relief under the new tax regime, exempting income up to Rs 12 lakh from taxation. The measures are expected to boost consumption and contribute to overall economic expansion.
“India’s economic growth will pick up from a cyclical slowdown,” the report noted.
Government spending and monetary easing are anticipated to support GDP growth, with Moody’s forecasting real GDP expansion of over 6.5% in FY26, up from 6.3% in FY25. The finance ministry’s Economic Survey has projected GDP growth in the 6.3%-6.8% range for the next fiscal, while official estimates indicate 6.5% growth for the current year.

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India’s real GDP growth had slowed to 5.6% in the July-September 2024 quarter before rebounding to 6.2% in the following quarter.

Banking sector outlook

Moody’s maintained a stable outlook for India’s banking sector, stating that while the operating environment will remain favorable, asset quality may deteriorate slightly after significant improvements in recent years. Stress is expected in unsecured retail loans, microfinance, and small business loans.
However, banks’ profitability is likely to remain adequate, with only marginal declines in net interest margins (NIMs) despite modest rate cuts.
Loan growth