S&P Lowers India’s FY26 GDP Growth Forecast to 6.3% Amid US Tariff Concerns

In its latest report titled “Global Macro Update: Seismic Shift In US Trade Policy Will Slow World Growth,” S&P Global Ratings has revised India’s GDP growth forecast for FY2025-26 from 6.5% to 6.3%. The downgrade of 20 basis points stems from escalating uncertainty over US tariff policies and the broader repercussions these may have on global trade sentiment and emerging economies.

S&P’s caution reflects not just India’s domestic economic dynamics but also the increased vulnerability of interconnected markets to global protectionist measures.

Trade Tensions and Tariff Risks

The downward revision is directly tied to fears surrounding a potential seismic shift in US trade policy. According to S&P, the US’s evolving stance on tariffs—especially the likelihood of renewed trade tensions—poses downside risks that could spill over into the Indian economy. “We reiterate that there are no winners in a scenario of escalating protectionist policies.”
– S&P Global Ratings

The agency noted that while the current impact has been largely seen in financial variables such as asset prices and confidence indices, signs of weakening real economic activity, especially in global trade flows, are emerging.

India’s Medium-Term Projections Hold Steady

Despite the near-term trim, S&P projects India’s GDP growth to recover modestly to 6.5% in FY2026-27, assuming that external shocks begin to stabilise and domestic economic fundamentals remain resilient.

The report also flagged that risks to this baseline remain “firmly on the downside,” particularly if the global trade environment deteriorates further due to stronger-than-expected spillover effects from tariff escalations.

Exchange Rate Outlook: INR Likely to Weaken Further

In addition to its GDP estimates, S&P shared projections for the INR/USD exchange rate, forecasting the rupee to weaken to ₹88 per US dollar by the end of 2025, from ₹86.64 projected for 2024. Currently, the rupee is hovering around the ₹84 mark.

This forecast accounts for increased volatility in the forex markets, primarily driven by shifting investor sentiment and capital flows in response to the US’s trade posture.

Regional Impact: China Faces Sharper Decline

S&P’s outlook was not limited to India. The agency expects China’s economic growth to slow significantly, projecting a decline of 0.7 percentage points, bringing its growth down to 3.5% in 2025 and further to 3% in 2026. This slowdown in Asia’s largest economy could ripple across supply chains and affect regional trade partners, including India.

The US Tariff Strategy: 3 Distinct Buckets

S&P categorised the potential US tariff strategy into three “buckets”, with China being treated as a distinct case. This approach reflects long-standing geopolitical rivalries, especially regarding bilateral trade imbalances and perceived unfair trade practices.

While the broader global economy has so far only seen nominal effects from the tariff announcements, such as asset price volatility and confidence dips, S&P flagged early signs of real impact. For instance, goods shipments from China have recently shown signs of contraction, suggesting that the protective trade stance may now be affecting actual economic flows.

Read More: World Bank Revises India’s FY26 GDP Projection to 6.3% Amid Global Uncertainties

Conclusion

As the global trade landscape continues to evolve, the full extent of the US tariff policy’s impact is yet to be seen. While India’s fundamentals remain relatively stable, external risks—particularly those stemming from a slowdown in global demand and capital outflows—could weigh on growth and currency stability.

In this context, the trimmed GDP forecast by S&P signals the need for heightened vigilance over the coming quarters.

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