GDP Forecast Revision
India Ratings cuts India FY26 GDP forecast by 30 bps on global uncertainties
This story was originally published at 14:17 IST on 23 July 2025
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NEW DELHI – India Ratings and Research Wednesday cut its GDP growth forecast for the current fiscal year by 30 basis points to 6.3% due to global uncertainties arising from the US' tariff announcement and weaker-than-expected investment climate. In December, the agency had projected a GDP growth of 6.6% for 2025-26 (Apr-Mar).
Tariff hikes by the US have increased global economic uncertainty, leading to slower growth for both global demand and trade, India Ratings and Research Chief Economist Devendra Kumar Pant said at a press conference. This has led to investors adopting a wait-and-watch mode before taking decisions on greenfield expansion, Pant added.
The US has announced that it will levy country-wise reciprocal tariffs starting Aug. 1. US President Donald Trump, who has been sending individual letters to nations, informing them about the reciprocal tariffs due to hit them, has not yet announced any duty for India. While on Apr. 2 Trump had announced a 26% reciprocal tariff on Indian goods, it is not clear whether the president will stick to the same level if he does issue a tariff letter to New Delhi. The tariffs mentioned in the latest letters sent to some countries so far are different from what was unveiled for them in April.
Meanwhile, New Delhi is engaged in negotiations for a trade deal with Washington to insulate Indian exports from the US' reciprocal tariffs. Both sides had held the last round of discussions in Washington in the week ended Friday.
Before Trump's Apr. 2 announcement, India Ratings and Research had anticipated an impact of 10 bps on India's GDP growth, as the bilateral weighted average tariff differential was 7%, so it had expected an additional duty of 7% on Indian goods, Pant said. However, currently the situation is too fluid to hazard a guess, Pant added.
"Sectors such as telecom, chemicals and garment exporters may face a capex slowdown in FY26," the agency said in a press note. "Sectors such as oil and gas and real estate in metro areas are likely to have flat capex growth in FY26. Sectors such as power (thermal as well as renewables), transmission and distribution, logistics, warehousing may see continuation of capex growth momentum. Commercial and retail real estate are likely to see a continuation in capex in FY26 as well."
India Ratings and Research's GDP growth forecast for FY26 is within the finance ministry's estimated growth range of 6.3-6.8%, but lower than the Reserve Bank of India's projection of 6.5%.
Economist Pant also listed some tailwinds--monetary easing, faster-than-expected inflation decline, and likely above-normal rainfall--which may support growth. But these may not be enough to completely offset the impact of the strong headwinds, India Ratings and Research Economist & Associate Director Paras Jarsai said.
The agency expects retail inflation to average at 3% in FY26. Although with average inflation at 3%, a substantial near-term monetary easing by the RBI seems unlikely, the agency said. The RBI has slashed the repo rate by 100 bps so far.
A sharp decline in inflation has improved the prospects for stable consumption growth in FY26. India Ratings and Research has estimated a growth of 6.9% in private final consumption expenditure in the current year as a fall in retail inflation stimulates positive real wage growth for most categories of wage earners.
India's GDP is estimated to have grown 6.5% in FY25, according to the National Statistical Office, with private final consumption expenditure growth at 7.2% and government final consumption expenditure growth at only 2.3% due to sluggish government capital spending in the first quarter of the fiscal year. End
Reported by Krity Ambey
Edited by Deepshikha Bhardwaj
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