S&P Pegs India's FY26 GDP Growth at 6.5%; Tax Cuts, Lower Interest Rates to Drive Consumption

S&P Global Ratings on Monday projected India's economy to grow 6.5% in the current fiscal year and 6.7% in the next, saying tax cuts and monetary policy easing will give a boost to consumption-driven growth.

India's real gross domestic product (GDP) is estimated to have grown at the fastest pace in five quarters at 7.8% in the April to June period of current fiscal year. The official data for Q2 (July-September) GDP growth estimates is scheduled to be released on November 28.

"We anticipate that India's GDP will grow by 6.5% in fiscal year 2026 (ending March 2026) and 6.7% 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.

The RBI has projected India's GDP growth in the current fiscal year at 6.8%, better than 6.5% expansion in last fiscal year.

S&P further said if India can secure a trade agreement with the US, it will reduce uncertainty and enhance confidence, which would boost labour-intensive sectors.

"Lowered goods and service tax (GST) rates will support middle-class consumption and complement income tax cuts and interest rate reductions introduced this year. These changes are likely to make consumption a greater driver of growth compared with investment, in this fiscal year, and the next," S&P added.

The Government in Budget for 2025-26 fiscal year has hiked I-T rebate to ₹12 lakh, from ₹7 lakh, which gave tax relief of ₹1 lakh crore to the middle class.

Besides, the RBI in June had cut key policy rates by 50 basis points to a 3-year low of 5.5%.

Further, effective September 22 the GST rates on about 375 items were slashed making mass consumption items cheaper.

S&P further said the spike in the effective US tariff on India is weighing on the expansion of export-oriented manufacturing in the country.

But there are signs the US may lower tariffs on Indian products.

"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 added.