S&P retains India’s GDP growth projection at 6.5%

New Delhi: S&P Global on Tuesday kept its projection on India’s economic growth for the current financial year unchanged at 6.5% saying resilient domestic demand would offset the impact of external headwinds following the increase in US tariffs and slower global growth.

In its ‘Economic Outlook Asia-Pacific Q4’ report, the global rating agency said India’s GDP growth would be supported by “a largely benign monsoon season, cuts in the income and the goods and services tax (GST), and accelerating government investment."

S&P projection on the Indian economy is in line with the Reserve Bank of India’s forecast of 6.5% growth for 2025-26. Fitch Ratings recently raised India’s GDP growth projection for 2025-26 to 6.9% from its earlier forecast of 6.5% citing better than expected Q1 numbers.

In the quarter ended June 2025, India’s gross domestic product (GDP) expanded by 7.8%, as per the latest official data. This was sharply higher than all estimates including the RBI’s projection of 6.5%.

While favourable monsoon, GST reforms and the government’s infrastructure push are key positives for the Indian economy, the imposition of high tariff by US President Donald Trump administration poses significant risk.

“Relative to our June assumptions on US tariffs, China has so far fared somewhat better than other Asian economies, and Southeast Asian emerging markets somewhat worse. India has been hit much harder than expected, and the region's developed economies broadly as expected,” S&P Global said in its report.

The United States has imposed a 50% tariff on the majority of Indian imports. S&P Global said the US tariff would hit India’s export-oriented manufacturing.

The rating agency has lowered its projection on India’s annual inflation for 2025-26 to 3.2% citing sharper-than-expected decline in food inflation. According S&P, redirection of exports away from the US would also lead to softening of inflation in India and other Asia-Pacific economies.

“This leaves room for further monetary policy adjustments and we anticipate a 25 bps rate cut by the Reserve Bank of India this fiscal year,” the rating agency said.

The monetary policy committee of the Reserve Bank of India is scheduled to meet from September 29-October 1 to deliberate on policy interest rates. The RBI kept key policy interest rates unchanged in August after lowering it cumulatively by 100 basis points in the previous three bi-monthly meetings.