S&P keeps India’s FY26 growth outlook at 6.5% despite US tariff strain

In its quarterly report, Economic Outlook Asia-Pacific Q4 2025: Growth To Ease On External Strain, the rating agency said: “We forecast India's GDP growth to hold steady at 6.5 per cent this financial year. We expect domestic demand to remain strong, supported by a largely benign monsoon season, cuts in the income and the goods and services tax (GST), and accelerating government investment.”

Alongside, S&P lowered its inflation estimate for FY26 to 3.2%, attributing it to a sharper-than-expected drop in food prices.

It added that low inflation gives the Reserve Bank of India (RBI) space for monetary policy easing, projecting a 25-basis-point rate cut during the year.

The RBI’s Monetary Policy Committee (MPC) is set to meet between September 29 and October 1.

In June, the MPC reduced the repo rate by 50 bps to 5.5% and shifted its stance from accommodative to neutral, where it has remained since.

However, the report flagged Donald Trump’s tariff measures as a drag on India’s external outlook.

“Relative to our June assumptions on US tariffs, India has been hit much harder than expected, and the region's developed economies broadly as expected,” it said, noting that China had absorbed the impact better than many Asian peers.

Higher US tariffs, S&P cautioned, will weigh on exports and cloud growth prospects due to uncertainty around their scope and enforcement.

India’s economy nonetheless recorded 7.8% growth in the June quarter, buoyed by recent income tax and GST cuts.

Union Minister Ashwini Vaishnaw told reporters on Monday that reforms are driving both consumption and investment.

He highlighted that GDP now stands at ₹330 trillion, with consumption rising 12% year-on-year to ₹202 trillion.

“With rising consumption, investment is set to increase significantly. Last year, investment was ₹98 trillion; this year, demand-driven growth will push it much higher,” Vaishnaw said.