S&P cuts India's FY26 GDP forecast to 6.3% over US tariff uncertainty

S&P Global Ratings on Friday cut India's growth projections by 0.2 per cent to 6.3 per cent for the current fiscal year citing uncertainty over the US tariff policy and downside risks from its spillover to the economy.

In its report titled "Global Macro Update: Seismic Shift In US Trade Policy Will Slow World Growth", S&P Global Ratings said "we reiterate that there are no winners in a scenario of escalating protectionist policies."  S&P said among Asia-Pacific's major economies, China is expected to see its growth drop by 0.7 per cent in 2025 to 3.5 per cent and in 2026 to 3 per cent.

S&P projected India's GDP growth to be 6.3 per cent in 2025-26 and 6.5 per cent in 2026-27 fiscal year.

In March, S&P had lowered the FY'26 GDP growth forecast to 6.5 per cent, from 6.7 per cent.

"The risks to our baseline remain firmly on the downside in the form of a stronger-than-anticipated spillover from the tariff shock to the real economy. The longer-term configuration of the global economy, including the role of the US, is also less certain," S&P said.

With regard to exchange rate fluctuations, S&P projected INR/USD exchange rate to be 88 by 2025-end from 86.64 in 2024.

The INR/USD pair is witnessing significant fluctuations since the US tariff announcement and the rupee is currently hovering at 84-level against the greenback.

According to S&P, the US economy is expected to grow 1.5 per cent this year and 1.7 per cent in the next.

The global rating agency said the US tariff policy will fall into three buckets -- China will be an individual case, reflecting the ongoing geopolitical rivalry, including long-standing tensions around the bilateral trade imbalance and "unfair competition."

Trade relations with the EU are likely to be complex, while Canada looks to take a firm stance on trade talks with the US.

"We expect most remaining countries will try to negotiate a settlement rather than retaliate," S&P said.

So far, the economic fallout from the tariff shock has been limited to drops in confidence indices and declines in nominal variables such as financial asset prices. It has yet to affect the real economy other than some front-running of imports to beat the tariffs.

That may be starting to change, as goods shipments from China have recently begun to decline, S&P noted.