India's GDP Growth Projected at 6.5% Amid Strong Domestic Demand

A recent report by S&P Global Ratings predicts that India's GDP will grow by 6.5% in FY26, supported by strong domestic demand and favorable monsoon conditions. The report highlights a significant decline in inflation rates, with the WPI reaching a 14-month low. The RBI has also revised its inflation outlook downwards, allowing for a reduction in the repo rate to stimulate economic growth. Despite external pressures, the outlook for domestic demand remains positive, indicating resilience in the Indian economy. This article delves into the factors influencing these projections and their implications for the future.

By Narendra Chaudhary Jun 24, 2025, 12:57 IST

Economic Outlook for India

New Delhi, June 24: A report from S&P Global Ratings indicates that India is expected to achieve a GDP growth rate of 6.5% in the current fiscal year (FY26), driven by strong domestic demand, favorable monsoon conditions, and monetary easing.

The resilience of domestic demand plays a crucial role in mitigating economic slowdowns, especially in countries like India that are less reliant on goods exports.

According to the report, which focuses on Asia-Pacific economies, India's GDP growth is projected to remain steady at 6.5% for the fiscal year ending March 31, 2026. This forecast is based on assumptions of a normal monsoon, reduced crude oil prices, tax concessions, and monetary easing measures.

Additionally, a decline in food inflation is contributing to the overall reduction in headline inflation in the country.

The annual inflation rate, as measured by the Wholesale Price Index (WPI), fell to a 14-month low of 0.39% in May, down from 0.85% in April and 2.05% in March.

Furthermore, the Consumer Price Index (CPI) inflation rate dropped to 2.82% in May compared to the same month last year, marking the lowest retail inflation since February 2019, according to recent data.

Food inflation also saw a decrease, reaching 0.99% in May, the lowest since October 2021. This marks the seventh consecutive month of declining food inflation, attributed to increased agricultural output.

The Reserve Bank of India (RBI) has adjusted its inflation forecast for 2025-26 downward from 4% to 3.7%, as stated by Governor Sanjay Malhotra on Friday. The significant drop in inflation has allowed the RBI to implement a 50 basis points reduction in the repo rate, lowering it from 6% to 5.5% to stimulate economic growth.

S&P Global Ratings noted that many regional economies began 2025 on a positive note due to strong domestic demand. Some economies experienced a temporary boost from an increase in exports to the U.S. ahead of expected tariffs. In India, growth has rebounded following a period of stagnation.

The report anticipates a GDP growth of 4.3% for China in 2025 and 4.0% in 2026.

While these figures fall short of the government's targets for the year, they represent a solid outcome given the external challenges. Chinese imports are expected to remain subdued this year and next, although not as weak as exports.

Asia-Pacific economies are facing significant external pressures, particularly from uncertain U.S. tariff policies and weak imports from China.

Despite these challenges, the report suggests that domestic demand is likely to remain robust, partly due to policy easing. However, the impact on the resilience of regional economies varies significantly, with those dependent on exports being less favorably positioned.