S&P Global cuts India's FY26 GDP growth forecast to 6.7% from 6.9%

Raises inflation projection for FY25 to 4.6%

Credit ratings agency S&P Global on Monday pared down its growth forecast for India to 6.7 per cent in FY26 from the earlier estimate of 6.9 per cent.

 

However, in its latest quarterly economic update for Asia-Pacific, the rating agency maintained its growth forecast for the current financial year (FY25) at 6.8 per cent as “high interest rates and a lower fiscal impulse temper urban demand”.

 

“While purchasing manager indices (PMIs) remain convincingly in the expansion zone, other high-frequency indicators show some transitory softening of growth momentum due to the hit to the construction sector in the September quarter,” the update noted.

 

The update also highlighted that persistent food inflation is delaying rate cuts by the Reserve Bank of India (RBI), and the central bank is expected to cut the policy rate only once in the current financial year.

 

“Consumer inflation is fueled by supply shocks in agriculture, which have driven up food prices. These shocks are linked to changing rainfall patterns and climate change-driven heatwaves. Traditionally volatile and hard to predict, food inflation has become even more capricious lately. The RBI cannot ignore food inflation when considering rate cuts. Food items make up nearly 46 per cent of the inflation basket and persistently high food inflation raises inflationary expectations,” the update said.

 

The RBI’s interest rate-setting Monetary Policy Committee (MPC) met last month and kept the benchmark interest rate steady at 6.5 per cent for the 10th consecutive time since February 2023 to keep inflation under control. The RBI is mandated by the government to maintain inflation at 4 per cent, with a tolerance band of 2 percentage points on either side.

 

Meanwhile, the rating agency raised its inflation projection for India to 4.6 per cent for the current financial year, up from the earlier projection of 4.5 per cent, even as it lowered its inflation expectation for FY26 to 4.4 per cent from the earlier estimate of 4.6 per cent.

 

Regarding the Asia-Pacific region, the update noted that the growth would be impeded by slower global demand and US trade policy, with China's stimulus measures supporting growth even as its economy is expected to be hit by U.S. trade tariffs on its exports.

 

The update had revised its growth projection for China to 3.8 per cent in 2026, down from 4.5 per cent projected earlier in September.