India resilient amid tariffs, to grow 6.5% in FY26: S&P

New Delhi: India is expected to remain resilient despite the threat of the new US administration imposing tariffs, which is usually on goods, as a significant portion of its exports consists of services, according to S&P Global Ratings.

The US is expected to announce reciprocal tariffs on countries, including India, on April 2. Currently, the US has imposed a global 25% tariff on steel and aluminium imports. The ratings agency anticipates a 10% levy on cars, pharmaceuticals and semiconductors imports.

While Asia-Pacific economies are likely to feel the effects of US tariffs and a pushback on globalisation, domestic demand in these regions will stay modest. This will result in only slight downward revisions to gross domestic product (GDP) forecasts, the agency noted.

For the US, the agency predicts lower growth and rising inflation due to the impact of import tariffs. "The heightened uncertainty about US economic policy and its impact, notably around tariffs, is weighing on investment in the US and elsewhere," it said.

S&P Global Ratings projects India's economy to grow at 6.5% in FY26, slightly lower than the previous forecast of 6.7%. This projection assumes normal monsoon conditions and soft commodity prices, particularly crude oil.

"Cooling food inflation, the tax benefits announced in the country's budget for the fiscal year ending March 2026, and lower borrowing costs will support discretionary consumption," the agency added.

S&P Global Ratings also forecasts 6.5% growth for India in FY25, in line with estimates from the National Statistical Office.

The agency predicts inflation to decrease to 4.4% in FY26 from 4.7% in the year before. "Easing food inflation and lower crude prices will lead inflation closer to the central bank's target of 4% in FY26." Additionally, the agency anticipates a policy rate cut of 75-100 basis points in the current cycle, leading to 5.5% rate in FY26.