S&P Global Ratings, one of the leading global credit rating agencies, on Tuesday revised its GDP growth forecast for India for the financial year 2026, lowering it from 6.7% to 6.5%. The adjustment comes as S&P anticipates external pressures from rising US tariffs and global economic shifts to impact the Asia-Pacific region, including India.
Domestic Demand to Remain Strong Despite External Pressures
While the revision reflects the challenges posed by these external factors, S&P remains optimistic about India’s domestic demand. According to their economic outlook for the Asia-Pacific region, the agency expects that strong domestic consumption will support economic growth in most emerging markets, including India. Despite the external challenges, S&P believes that India will continue to maintain robust momentum in its economy.
S&P’s forecast for India’s GDP growth assumes that the upcoming monsoon season will be normal, with moderate commodity prices, particularly crude oil, which are expected to remain soft. These assumptions provide some optimism that inflationary pressures will remain manageable.
Key Factors Driving India’s Growth
S&P cited several factors that could help sustain India’s economic growth in the near term. Among these is the reduction in food inflation, which will likely ease the cost of living and stimulate consumer spending. Additionally, the government’s budgetary measures, including tax benefits, are expected to support discretionary consumption. Furthermore, the continued low borrowing costs, driven by a softening of interest rates, will also act as a boost to both consumer spending and business investments in the country.
The agency is also optimistic about the impact of a normal monsoon, which could help sustain agricultural output, another key component of India’s economy.
Interest Rate Cuts Expected from Reserve Bank of India (RBI)
S&P expects central banks across the Asia-Pacific region to continue cutting benchmark interest rates this year to stimulate growth amid global uncertainties. Specifically, the agency estimates that the Reserve Bank of India (RBI) will reduce its key policy rate by 75-100 basis points in the current cycle. This follows the RBI’s recent decision to cut the repo rate by 25 basis points in its monetary policy review, bringing it down to 6.25% from 6.50%.
Lower interest rates will likely support borrowing and investment, which should aid in boosting domestic consumption and economic growth. With food inflation and falling crude oil prices expected to ease, S&P believes that India will come closer to meeting the RBI’s inflation target of 4% for the financial year ending March 2026.
Impact of Rising US Tariffs on Asia-Pacific Economies
A key concern highlighted by S&P is the ongoing rise in US tariffs, which is expected to put pressure on the economies of the Asia-Pacific region, including India. The report noted that the US administration, under former President Donald Trump, has implemented tariffs that directly impact major trading partners like China, Canada, and Mexico, with global trade also being affected by steel and aluminum tariffs.
S&P emphasized that the economic policies of the Trump administration are evolving and could continue to exert significant pressure on the global trading system, potentially creating challenges for emerging markets in the region. The impact of rising tariffs and protectionist policies could slow down international trade and affect the global supply chain, leading to additional uncertainties for India and other economies in the Asia-Pacific region.
In conclusion, while S&P Global Ratings has slightly downgraded India’s GDP growth forecast for FY2026, the agency remains hopeful that domestic factors such as strong consumption, tax benefits, and lower interest rates will help sustain economic growth. Despite the challenges posed by rising US tariffs and global trade pressures, India’s economy is expected to continue its recovery, albeit at a slightly slower pace than initially projected.
India’s ability to navigate these external pressures while maintaining strong domestic demand and investment will be critical in determining the trajectory of its economic growth in the coming years.
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