S&P cuts India`s GDP growth forecast to 6.5% for FY26 amid global strains
S&P Global Ratings in its Economic Outlook for Asia-Pacific (APAC) has cut India's GDP growth projections for the Fiscal year 2025-26 (FY26) to 6.5 per cent as it expects that economies in the APAC region will feel the strain of rising US tariffs and pushback on globalization. It said despite these external strains S&P expects domestic demand momentum to remain solid in most emerging market economies. It noted that it has kept the forecast for FY26 same as the outcome for the previous fiscal year, but less than their earlier forecast of 6.7 per cent. The forecast assumes that the upcoming monsoon season will be normal and that commodity, especially crude, prices will be soft.
S&P indicated that the cooling food inflation, tax benefits announced in the country's budget for the upcoming fiscal year and lower borrowing costs will support discretionary consumption in the country. The rating agency expects central banks in the Asia Pacific region to continue cutting benchmark interest rates through this year. It has forecasted that the Reserve Bank of India (RBI) will cut interest rates by another 75 bp-100 bp in the current cycle as easing food inflation and lower crude prices will move headline inflation closer to the central bank target of 4 per cent in the fiscal year ending March 2026 and fiscal policy is contained.
On Asia-Pacific front, S&P has indicated that the Asia-Pacific will feel the strain of rising US tariffs. It added that till now the new US government has imposed an additional 20 per cent tariff on imports from China; 25 per cent levies on some imports from Canada and Mexico, with levies on other products postponed for a month; and a global 25 per cent tariff on steel and aluminium. Besides, the US has also announced an intention to impose ‘reciprocal tariffs’ and tariffs on cars, semiconductors and pharmaceuticals.
According to the rating agency, the import tariffs will lower growth in the US and abroad, and raise US inflation. Further, it also expects the US Federal Reserve to cut its policy rate by 25 basis points (bp) only one time in 2025, in the end, and make three such cuts in 2026 as the heightened uncertainty about US economic policy and its impact, notably around tariffs, is weighing on investment in the US and elsewhere.
