S&P holds India’s FY26 growth at 6.5%, says domestic demand to cushion US tariff impact

The firm noted that GST rate rationalisation and policy support should keep consumption humming through the year

India’s economy will likely grow at the same pace as last year, with resilient domestic demand helping to partially offset the drag from US tariffs, S&P Global Ratings said on September 23. The global ratings agency kept its FY26 forecast unchanged at 6.5 percent, while projecting growth of 6.7 percent for FY27.

“Resilient domestic demand is partially offsetting the drag from weaker exports, with the effect particularly strong in emerging markets less reliant on goods trade, such as India,” S&P said in its Asia-Pacific outlook.

The firm noted that GST rate rationalisation and policy support should keep consumption humming through the year. “We expect domestic demand to remain strong, supported by a largely benign monsoon season, cuts in income and goods and services tax, and accelerating government investment,” it added.

India grew 7.8 percent in Q1FY26, its fastest pace in five quarters. Policymakers expect another 7 percent print in the second quarter. “India could grow at 7 percent in the second quarter,” Chief Economic Advisor V Anantha Nageswaran said at Network18’s Reforms Reloaded summit on September 22.

On currency, S&P flagged India and Indonesia as outliers in Asia. “Almost all Asia-Pacific currencies are still stronger against the US dollar than at the end-2024. The only exceptions are the Indian rupee and the Indonesian rupiah,” it said. The rupee hit an all-time low of 88.75 against the dollar on September 23.

Inflation, however, offers some relief. S&P expects price gains to average 3.2 percent in FY26, sharply lower than earlier projections, before climbing above 4 percent next year. “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,” it said.

The RBI’s Monetary Policy Committee has already cut policy rates by 100 basis points in 2025, bringing the repo rate to 5.5 percent. S&P sees one more cut this year to 5.25 percent, a level it expects the central bank to hold through the next year.