OECD lowers India’s FY26 growth forecast to 6.3% as tariffs dent global economy

India to be fastest growing economy in 2025 and 2026

India’s economy is expected to grow a tad slower than earlier anticipated at 6.3 percent compared with 6.4 percent in March, Organisation for Economic Co-operation and Development (OECD) noted on June 3 at the release of its economic outlook.

Paris-based OECD also lowered India’s FY27 outlook to 6.4 percent from 6.6 percent projected earlier, as it noted that private consumption will continue to support growth, with recent tax cuts and moderating inflation providing support.

“Investment will be supported by declining interest rates and substantial public capital spending, but higher US tariffs will weigh on exports. Inflation will remain contained at around 4% as economic activity grows around trend,” it said.

However, the 38-member grouping of developed nations also highlighted that export growth is expected to slow down due to weaker global demand and trade policy uncertainty arising from high tariffs.

On the inflation front, OECD was more optimistic projecting 4.1 percent inflation in FY26 and 4 percent the following year.

“Inflation expectations remain well anchored, and wage pressures are expected to remain contained with the economy projected to grow around potential, suggesting limited demand-driven inflation pressures,” it said.

The early arrival of monsoon and expectation of an above normal rainfall between June and September is also expected to help boost food production and keep prices in check.

The organisation also was hopeful for one more rate cut from the central bank, over the 50 bps reduction it has already devlivered.

India’s policy rate has come down to 6 percent from 6.5 percent projected earlier. Experts indicate that the monetary policy committee may deliver another rate cut, a third in row, at its meeting scheduled for June 4-6.

The organisation also noted the need for further reforms in labour market, especially pertaining to women participation and fiscal prudence as measures that could boost growth further.

The outlook for the global economy was gloomier.

“Our latest economic outlook shows that today’s policy uncertainty is weakening trade and investment, diminishing consumer and business confidence and curbing growth prospects,” said OECD Secretary-General Mathias Cormann.

Global growth is projected to decline from 3.3 percent to 2.9 percent for 2025 and 2026.

OECD highlighted that US, Canada, Mexico and China would suffer the most.