S&P sees India’s GDP growth at 6.5% in FY26 as tax cuts, lower interest rates boost consumption

S&P Global Ratings on Monday projected India’s economy will grow 6.5% in the current fiscal year, saying recent tax cuts and monetary policy easing will boost consumption and keep domestic demand resilient.

Growth is then expected to pick up to 6.7% in the following year, with risks “evenly balanced”, the ratings agency said in its Economic Outlook Asia-Pacific report.

India’s economy expanded 7.8% in the April–June quarter, the fastest pace in five quarters.

"We anticipate that India's GDP will grow by 6.5 per cent in fiscal year 2026 (ending March 2026) and 6.7 per cent in fiscal 2027, with risks evenly balanced. Domestic growth remains robust, driven by strong consumption, despite the impact of US tariffs," S&P said in its Economic Outlook Asia-Pacific report.

Official GDP data for July–September will be released on November 28.

S&P said that a potential trade agreement between India and the United States would reduce uncertainty and support labour-intensive sectors.

A senior government official last week indicated that the first phase of the proposed India-US bilateral trade agreement (BTA) is “nearing closure” and is expected to resolve the steep 50% tariffs imposed on Indian goods by the Trump administration.

The US currently levies 25% reciprocal tariffs and an additional 25% penalty on Indian products entering its market for purchasing Russian crude oil.

"The US's new approach to trade policy is causing governments and firms to spend time and money on negotiating for exemptions, consequently diverting attention from efforts to raise productivity," S&P said.

The Reserve Bank of India expects GDP growth of 6.8% in the current fiscal year, up from 6.5% last year.

In the 2025-26 budget, the government raised the income-tax rebate limit to ₹12 lakh from ₹7 lakh, a measure it said delivered ₹1 trillion in relief to the middle class. The RBI cut its key policy rate by 50 basis points in June to a three-year low of 5.5%, while GST rates on about 375 items were reduced from September 22 to make mass-market goods cheaper.

S&P said the income-tax cuts and lower goods and services tax (GST) rates are likely to tilt growth drivers towards consumption.