India's Economy Expected to Grow 6.5% in 2025-26

India's economy is projected to grow at 6.5% in 2025-26 and 6.7% in 2026-27. Tax cuts and easier monetary policy are expected to boost consumption-led growth. Reduced GST rates will encourage middle-class consumption, while export-oriented manufacturing is being affected by US tariffs.

S&P Global Ratings Forecast

S&P Global Ratings estimates India's economy will grow at 6.5% in FY 2025-26 and 6.7% in FY 2026-27. The agency highlighted that government actions, including income tax cuts and monetary easing, will encourage consumption-driven growth. Despite US tariffs, strong domestic consumption remains a key driver.

GDP Growth and RBI Projection

India's real GDP is expected to grow at 7.8% in Q1 of FY 2025-26. The RBI has projected a GDP growth rate of 6.8% for the full year, higher than 6.5% in FY 2024-25.

Impact of GST Rate Cuts

S&P noted that lower GST rates will boost middle-class consumption, complementing income tax and interest rate reductions. The government increased the income tax exemption limit from Rs 7 lakh to Rs 12 lakh, providing Rs 1 lakh crore in tax relief to the middle class. RBI reduced key policy rates by 0.5%, bringing them to 5.5%.

Effect of US Tariffs on Manufacturing

S&P added that increased US tariffs have affected India's export-oriented manufacturing. Negotiations for tariff relief are consuming time and resources, impacting productivity-enhancing efforts.