S&P Global Ratings’ Outlook: India’s Economy on a Steady Course Despite Headwinds
A new report from S&P Global Ratings forecasts that India’s economy will maintain its position as Asia-Pacific’s fastest-growing major economy, with a 6.5% GDP growth rate for the fiscal year FY25-26. This resilience is largely thanks to strong domestic demand and significant government investment, which are helping to offset rising global trade pressures.
Key Drivers of Growth
- Robust Domestic Demand: A favorable monsoon season is expected to support rural consumption, while recent cuts to income and goods and services taxes (GST) are boosting household spending.
- Government-Led Investment: Public sector investment in infrastructure is providing a strong boost to the economy and compensating for a lack of momentum in private sector spending.
- Easing Inflation: A sharp decline in food prices has pushed down the overall inflation forecast for FY25-26 to 3.2%. This has created room for the Reserve Bank of India (RBI) to ease monetary policy, with a projected 25 basis point rate cut by the end of the fiscal year.
External Challenges
While the domestic picture is strong, the report highlights several external pressures facing India:
- US Tariffs: India has been “hit much harder than expected” by a significant increase in effective US tariffs, which is creating difficulties for the country’s manufacturing and export goals.
- Currency Weakness: The Indian rupee has weakened against the US dollar, with a projected exchange rate of ₹88 per dollar by the end of the fiscal year.
- Competition from China: Indian manufacturers are also contending with increasing competition from Chinese firms, who are exporting cheaper goods to the region due to domestic overcapacity.
Long-Term Outlook
Despite these external challenges, the outlook for India’s economy remains positive. S&P projects continued robust growth:
- FY26-27: 6.7%
- FY27-28: 7.0%
- FY28-29: 6.8%
This forecast suggests that while the pace of global economic expansion may slow, India is well-positioned to remain a key growth engine for the Asia-Pacific region, driven by its strong domestic fundamentals.
