India’s Economy to Grow 6.5% in FY25-26: S&P

S&P Global Ratings’ forecast of 6.5% growth for India in FY25-26 underscores the resilience of the economy in the face of significant external challenges. The agency highlights that strong domestic demand, bolstered by favourable monsoon conditions and recent tax cuts, is providing a solid foundation for expansion. This internal strength is crucial as India contends with a sharper rise in US import tariffs than many of its Asian peers, which threatens to undermine the country’s export competitiveness and its ambitions to become a global manufacturing hub. The robust 7.8% GDP growth recorded in the June 2025 quarter, driven primarily by public investment, demonstrates how government spending is effectively offsetting global trade pressures.

The strategic focus on domestic infrastructure and development projects has created a buffer against international market volatility. S&P’s analysis suggests that this countercyclical approach is paying dividends, allowing India to maintain growth momentum even as other economies in the Asia-Pacific region face stronger headwinds. The combination of fiscal support through tax cuts and monetary policy flexibility positions India uniquely to navigate the complex global trade environment while pursuing its long-term economic objectives.

A significant development in India’s economic landscape is the sharp easing of inflation, with S&P revising its forecast for FY25-26 down to 3.2% from the previous 4.6%. This substantial improvement in price stability provides the Reserve Bank of India with much-needed policy space to support growth without triggering inflationary pressures. The rating agency anticipates that this favourable inflation environment will enable the central bank to cut the repo rate by 25 basis points to 5.25% by March 2026, providing additional stimulus to the economy.

The disinflation trend represents a remarkable turnaround from previous years when rising prices constrained monetary policy options. This development is particularly timely given the external challenges facing the economy, as lower interest rates can help stimulate investment and consumption at a moment when global trade conditions are becoming less favourable. The combination of fiscal support through government investment and potential monetary easing creates a powerful policy mix to sustain India’s growth trajectory.

The Indian rupee has weakened to approximately Rs 88 per US dollar, reflecting both global trade challenges and the risk of imported inflation. This currency depreciation, while potentially boosting export competitiveness, also carries the downside risk of making imports more expensive, particularly crucial inputs for manufacturing and energy needs. The currency movement needs to be monitored carefully as it interacts with other economic variables, including the inflation outlook and trade balance.

Meanwhile, competition from Chinese exporters is intensifying as China pushes cheaper goods into Asian markets, creating additional pressure on India’s manufacturing and export sectors. This competitive dynamic adds complexity to India’s ambition to establish itself as a manufacturing hub, requiring strategic responses to maintain competitiveness. The combination of US tariff pressures and Chinese competition represents a dual challenge that will test India’s economic resilience and policy effectiveness in the coming years.

S&P’s projections beyond FY25-26 paint an encouraging picture for India’s medium-term growth prospects. The agency forecasts growth accelerating to 6.7% in FY26-27 and further to 7.0% in FY27-28 before moderating slightly to 6.8% in FY28-29. This sustained growth trajectory positions India as a regional bright spot even as overall Asia-Pacific growth is expected to slow to 4.4% in 2025 and 4.0% in 2026.

The consistency of these projections suggests that S&P views India’s current growth drivers as sustainable over the medium term. The country’s ability to maintain growth rates significantly above regional averages underscores its unique position in the Asian economic landscape. As other economies grapple with slower expansion, India’s relative outperformance could attract increased foreign investment and enhance its strategic importance in global supply chains, provided it can successfully navigate the current trade challenges.