Virendra Pandit
New Delhi: With Prime Minister Narendra Modi and his government promoting swadeshi products and the Make-in-India movement for self-reliance, coupled with recent changes in income tax and GST rates, India is poised to register a 6.5 percent growth this financial year.
Rating agency S&P Global on Tuesday maintained India’s economic forecast at 6.5 percent for 2025-26 and expected that income tax and GST rate cuts will boost domestic demand, the media reported.
“We expect domestic demand to remain strong, supported by a largely benign monsoon season, cuts in the income and the goods and services tax, and accelerating government investment,” the agency said in its latest quarterly Asia-Pacific economic commentary. It also said that GDP growth in the April-June 2025 quarter, at 7.8 percent, was better than expected.
After raising the minimum income to Rs. 12 lakh this year for levying income tax, the Centre implemented rate cuts for Goods and Services Tax from September 22. With revision in around 400 goods and services, some impact on retail inflation based on Consumer Price Index (CPI) is expected.
S&P Global agreed: “For India, we have revised our inflation forecast down to 3.2 percent for this fiscal year after a sharper than expected decrease in food inflation. This leaves room for further monetary policy adjustments and we anticipate a 25 bps rate cut by the Reserve Bank of India this fiscal year.”
The agency noted that investment has been particularly buoyant in India, and Malaysia and Taiwan posted growth rates of up to 16 percent in the first half of 2025. However, “in India that strength stems from government investment, as private capex remains sluggish,” it said.
About the US tariffs, it said that impact on imports from different Asian economies will shape both their export outlook and their role in regional supply chains. Relative to June assumptions on US tariffs, China has so far fared somewhat better than other Asian economies, and Southeast Asian emerging markets somewhat worse.
“India has been hit much harder than expected, and the region’s developed economies broadly as expected,” the agency said.
Compared to the situation prior to the Trump administration’s tariffs, all Asia-Pacific economies face much higher effective US tariffs.
The rise is higher for China than for Southeast Asian emerging markets and developed economies, and currently even higher for India. But “we think the risk of further changes in US tariffs, and thus these relative positions, is high,” the agency said.
It estimated the increase in the effective tariff on China compared to the pre-Trump administration situation is higher than for Southeast Asian emerging markets, but not drastically.
“In our view, this suggests that relative price competitiveness in the US market may not have shifted enough to warrant major supply-chain adjustments–particularly given the ongoing uncertainty around US tariff policy and the US administration’s plan to curb what it describes as “trans-shipment”, or a re-routing of shipments to evade applicable duties,” it said.
That said, companies will continue to shift manufacturing operations because of other reasons, such as diversification. “Using the same benchmark–relative to the pre-Trump administration situation–we estimate that India’s effective US tariff has increased quite a bit more than that on the rest of Asia, challenging its plans to expand its role in export-oriented manufacturing,” the agency said.