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Informist, Tuesday, Mar. 25, 2025

 

--S&P lowers India FY26 GDP growth forecast by 20 bps to 6.5% 

--S&P: Expect RBI to lower interest rate by another 75-100 bps

NEW DELHI – S&P Global Ratings has lowered its forecast for India's GDP growth in 2025-26 (Apr-Mar) by 20 basis points to 6.5?cause of the impact of tariff hikes by the US.

 

US President Donald Trump has announced several tariff hikes since taking office in January. Trump has imposed a 25% tariff on all steel and aluminum imported into the US. The US will also levy reciprocal tariffs on countries, including India, from Apr. 2, Trump has said. On Monday, Trump announced that the US will impose secondary tariff on Venezuela for numerous reasons and any country that buys oil or gas from Venezuela will pay a 25% tariff on any trades made with the US.

 

"Asia-Pacific economies will feel the strain of rising US tariffs specifically and a pushback on globalization more generally. However, we see domestic demand momentum broadly holding up, especially in the region's emerging-market economies," S&P said in a report. As tariffs tend to be levied on goods, trade will be more resilient in economies such as India where a substantial share of exports is of services.

India's GDP is estimated to have grown at a four-year low pace of 6.5% in FY25, as per government data. S&P expects economic activity to recover after next year and projects India's GDP to grow 6.8% in FY27 and 7.0% in FY28. 

 

Last week, S&P had said that a robust economy and low exposure to the US would protect India from the effects of Washington's tariff policies, but some sectors such as steel, chemicals, auto could be disrupted due to the indirect impact of tariff hikes. 

 

"This (India GDP growth forecast) assumes the upcoming monsoon season will be normal and that commodity--especially crude--prices will be soft," S&P said in a report Tuesday. "Cooling food inflation, the tax benefits announced in the country's budget for the fiscal year ending March 2026, and lower borrowing costs will support discretionary consumption."

 

The rating agency's growth forecast for FY26 is lower than the Reserve Bank of India's projection of 6.7%. 

 

S&P expects the RBI to lower interest rates by another 75-100 basis points in the current cycle. The RBI's Monetary Policy Committee lowered the repo rate by 25 bps to 6.25% in February, in the first repo rate cut since May 2020. 

 

Easing food inflation and lower crude prices will move headline inflation closer to the central bank's target of 4% in FY26. CPI inflation fell to a seven-month low of 3.61% in February. S&P projects CPI inflation at 4.4% in FY26, 20 bps lower than the RBI's forecast. S&P expects India's inflation to be 4.5%, 4.2%, and 4.5% in FY27, FY28, and FY29, respectively.  

 

S&P also projects the Indian rupee to end FY25 at 87.0 against the dollar, and fall to 88.0 per dollar by the end FY26. The rupee closed at 85.64 against the dollar on Monday.  End

 

Reported by Shubham Rana

Edited by Avishek Dutta

 

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