S&P lowers India's FY26 GDP growth forecast to 6.5%

S&P Global Ratings has reduced India's GDP growth forecast to 6.5% for the fiscal year ending March 31, 2026. This adjustment is due to external challenges, like rising tariffs from the US and global trade tensions. However, strong domestic demand, along with factors like declining food inflation and lower borrowing costs, is expected to help sustain growth. In its recent Economic Outlook for Asia-Pacific, S&P noted that despite the pressures, domestic demand should remain strong in many emerging-market economies. The 6.5% growth estimate matches the previous fiscal year's outcome but is lower than an earlier expectation of 6.7%. The forecast relies on the assumption of a normal monsoon season and stable commodity prices, particularly for crude oil. S&P also highlighted that the Reserve Bank of India is likely to reduce interest rates further, estimating a cut of 75 to 100 basis points in the current cycle. Lower food inflation and softer crude prices may bring overall inflation closer to the RBI's target of 4% by the end of the fiscal year. The agency pointed out that rising US tariffs and a general pushback on globalization are impacting economies across the Asia-Pacific region. It remains optimistic that the underlying demand in emerging markets will continue to support economic growth, reflecting the resilience of these economies. The current US administration's economic policies, including increased import tariffs on goods like steel and aluminum, are expected to slow growth in the US and abroad, while also raising inflation. S&P anticipates the US Federal Reserve will make only one interest rate cut in 2025, followed by three in 2026, as uncertainty over US economic policy weighs on investments domestically and internationally.