CHENNAI: India’s growth prospects for financial year 2026 (FY26) received a measured endorsement from S&P Global Ratings, which has maintained its real GDP growth projection at 6.5 percent for the year ending March 2026. The agency expects growth to edge up to 6.7 percent in FY27, arguing that the country’s economic momentum will lean heavily on domestic demand as new tax measures and lower interest rates expand households’ spending capacity.
S&P’s outlook hinges on a clear shift toward consumption-led growth. The recent increase in the income-tax rebate ceiling—from Rs 7 lakh to Rs 12 lakh—has created roughly Rs 1 lakh crore in additional disposable income for middle-income households. Combined with broad GST rate cuts on hundreds of mass-consumption goods, and the Reserve Bank of India’s 50-basis-point policy rate reduction earlier this year, the policy environment has begun to tilt decisively toward boosting spending. Cheaper goods and easier borrowing conditions are expected to filter quickly into consumption demand, which already accounts for more than half of India’s GDP.
A favourable monsoon has added to this consumption outlook by improving agricultural output and rural income, both of which tend to have a strong bearing on India’s broader demand cycle. S&P expects inflation to moderate to near 3.2 percent, providing additional support for real household purchasing power.
However, the agency also points out that India’s external-facing sectors continue to face substantial headwinds. US tariffs remain a drag on export-oriented manufacturing, limiting any meaningful contribution to growth from global demand. This is emerging as a point of vulnerability at a time when domestic consumption is expected to do much of the heavy lifting for the economy. S&P warns that if export weakness persists, India’s manufacturing sectors may struggle to generate jobs and investment at the pace required for broader economic balance.
The investment climate itself remains an area to watch. While government capital expenditure continues to support infrastructure build-out, private investment has yet to accelerate convincingly. Economists note that an overreliance on consumption, without a parallel rise in capital formation, may limit productivity gains and constrain India’s ability to move into a higher 8% growth range. That threshold has been repeatedly cited by policymakers as necessary for meeting long-term development goals, particularly in a globally uncertain environment.
Even so, the current macroeconomic configuration offers some advantages. With inflation appearing contained and growth stable, S&P believes the RBI may retain room for another potential rate cut of around 25 basis points if conditions warrant, which would further ease financing costs for households and businesses. The ratings agency adds that India’s fiscal stance, while accommodating tax relief, has so far remained within manageable limits.
For businesses, a consumption-driven cycle could unlock stronger demand in retail, discretionary spending, consumer durables, hospitality and services. Firms heavily dependent on exports or global manufacturing demand may experience a more challenging phase, unless domestic markets provide enough offsetting opportunities. Investors may also find more traction in sectors tied to domestic demand rather than trade-exposed industries.
Overall, S&P’s projection signals confidence in India’s near-term resilience and its capacity to generate growth from within. The combination of tax cuts, rate reductions and supportive rural trends is expected to maintain steady momentum through FY26. Yet the outlook also underscores the limits of consumption-led growth. Ensuring a stronger investment revival and reducing external vulnerabilities remain central to lifting India beyond the mid-6% band and closer to its long-term potential.