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India’s gross domestic product (GDP) growth is likely to improve to 6.7 per cent next fiscal (FY26), a Crisil Intelligence report said on Monday, adding that a sustained decline in food inflation, coupled with soft non-food inflation should create room for a rate cut in the coming months. 

Headline inflation continued making progress towards the central bank’s 4 per cent inflation target with food inflation easing for the second consecutive month and non-food inflation stabilising.

Consumer Price Index inflation cooled to 5.2 per cent from 5.5 per cent in November and food inflation eased to 8.4 per cent from 9 per cent, whereas non-food inflation stayed at 3.1 per cent.

“Net-net for this fiscal, we expect CPI inflation to average 4.6 per cent with some upside bias to the forecast,” said the Crisil report.

The Index of Industrial Production (IIP) picked up to 5.2 per cent in November, from 3.7 per cent in October (revised up from 3.5 per cent).

The increase was driven primarily by outperformance in investment goods and consumer durables, while a low base effect also contributed.

The National Statistical Office’s first advance estimates indicate a growth moderation to 6.4 per cent from 8.2 per cent last fiscal.

“Going forward, we expect GDP growth to improve to 6.7 per cent next fiscal in our base case scenario. The Reserve Bank of India rate cuts, lower crude oil prices and a normal monsoon are expected to support growth,” said the report.

Agricultural growth is likely to rise as higher reservoir levels also bode well for the rabi output. This should provide a fillip to farm incomes and rural consumption.

Higher agriculture production is likely to ease the pressure on food inflation in the remainder of this fiscal, which will boost discretionary consumption.