S&P Global Revises India’s GDP and Inflation Projections

S&P Global Ratings maintained India’s GDP growth forecast for FY25 at 6.8% while revising FY26 down to 6.7% from the earlier estimate of 6.9%. The agency also raised its inflation projection for FY25 to 4.6%, reflecting persistent food inflation and supply shocks in agriculture caused by climate factors like changing rainfall patterns and heatwaves. The Reserve Bank of India (RBI), mandated to keep inflation at 4% ± 2%, is expected to cut policy rates only once this fiscal year, with the repo rate held steady at 6.5% since February 2023.

Economic Growth Outlook

FY25: S&P retained the growth estimate at 6.8%, citing stable purchasing manager indices (PMIs) indicating economic expansion, though high interest rates and reduced fiscal spending are tempering urban demand.

FY26: Growth forecast lowered to 6.7%, reflecting global headwinds and domestic factors such as a construction sector slowdown in Q2 FY25.

Inflationary Trends and RBI’s Policy Stance

Inflation FY25: Raised to 4.6% (from 4.5%) due to agricultural supply shocks driven by climate irregularities.

RBI’s Dilemma: Food inflation, accounting for 46% of the inflation basket, has become harder to predict, complicating monetary policy decisions.

FY26 Inflation: Revised down to 4.4% (from 4.6%).

Regional and Global Context

Asia-Pacific: Growth dampened by weaker global demand and U.S. trade policies. China’s 2026 GDP growth projection was also cut to 3.8% from 4.5%.

India’s Momentum: Despite recent slack, the RBI predicts stronger recovery ahead, with a projection of 7.2% growth for FY25 in its latest bulletin.

Broader Implications

This update reflects both India’s resilience in maintaining steady growth and the challenges posed by inflationary pressures, global trade dynamics, and climate-induced agricultural shocks. The cautious monetary stance and persistent inflation signal a balancing act between growth and price stability.

Summery of the news