India’s economy is expected to maintain healthy momentum in FY26, supported by strong domestic consumption and continued government spending, according to a Crisil report released on Monday.

The agency projects GDP growth at 6.5% in FY26, though it flagged downside risks from global headwinds, including slowing international demand and US tariff measures.

Crisil identified four key drivers of private consumption, which it sees as the main growth engine this fiscal:

• Good monsoon boost: With rainfall at 106% of the long-period average as of August 28 and kharif sowing up 3.4% year-on-year, rural incomes and agricultural output are expected to rise, keeping food inflation contained.

• Easing inflation: Retail inflation has dropped to 2.4% (April–July average) from 4.6% in FY25, freeing household budgets for discretionary spending.

• Policy support: The RBI’s 100-basis-point rate cut so far this year, along with a phased CRR reduction (Sept–Dec), is set to bolster urban consumption. At the same time, income tax relief and higher rural scheme allocations will raise disposable incomes.

• GST revamp: Potential changes in GST structure, which may lower taxes on some consumer goods, could further aid demand once implemented.

The report noted India’s Q1 FY26 GDP growth at 7.8%, a five-quarter high, led by strong private consumption, manufacturing, services, and a surge in government expenditure. Export growth also saw a temporary spike as firms front-loaded shipments ahead of expected US tariffs.

While domestic demand remains the bright spot, Crisil cautioned that the full impact of global trade pressures will need close monitoring through the year.