Mumbai: International rating agency S&P Global has cut its forecast for the country by 20 bps to 6.5% for FY26, saying Indian and other export-driven Asian economies will feel the pain of the ongoing US tariff wars and the resultant pushback to globalisation.
In its economic outlook for Asia-Pacific released Tuesday, S&P said despite these external pressures, it expects domestic demand momentum to remain solid in most emerging-markets.
"India's GDP will grow 6.5% in the fiscal year 2026, we expect. Our forecast is the same as the outcome for the previous fiscal year, but less than our earlier forecast of 6.7%," it said, adding this is based on the assumption of a normal monsoons and softer commodity prices, especially that of crude oil.
The country imports almost 87% of its oil demand annually. The economy is likely to close the current fiscal at 6.3-6.5%Cooling food inflation, tax cuts announced in the budget 2026 and lower borrowing costs will support discretionary consumption, S&P added. The agency expects central banks in the Asia-Pacific region to continue cutting benchmark interest rates through this year and seems the RBI slashing its rates by 75-100 bps in the next fiscal.
"We expect the Reserve Bank to cut interest rates by another 75-100 bps in the current cycle. Easing food inflation and lower crude prices will move headline inflation closer to the central bank’s target of 4% in the next fiscal and fiscal policy is contained," it said.
Last month, the RBI had reduced the repo rate by 25 bps to 6.25% -- first time in close to five years. On the rest of Asian economies which are more export dependent, the agency said the Asia-Pacific economies will feel the strain of rising US tariffs specifically and a pushback on globalisation more generally.
“However, we see domestic demand momentum broadly holding up, especially in the region's emerging-market economies. Given the volume of policy measures and external pressures hitting Asia-Pacific, the robustness of our forecasts underscores the resilience of the regional economies," it said.
So far the new US government has imposed an additional 20% tariff on imports from China; 25% on some imports from Canada and Mexico, with levies on other products postponed for a month; and a 25% tariff on steel and aluminium for all imports.
It is also planning to impose "reciprocal tariffs" and tariffs on cars, semiconductors and pharmaceuticals. “In our view, the import tariffs will lower growth in the US and abroad, and raise US inflation. We now expect the Federal Reserve to cut its policy rate by 25 bps only once in 2025, and three such cuts in 2026.