S&P Global Ratings has recently revised its India growth forecast for FY26 down to 6.3%, marking a 20 basis point cut from its previous estimate of 6.5%. This reduction is attributed to rising global uncertainties and the impact of recent shifts in US trade policy, particularly the increase in US tariffs on imports. The credit rating agency has also lowered its growth estimate for FY27 to 6.5%, citing concerns that the tariff shocks will have a prolonged negative impact on global economic stability.

Global Trade Shocks and India's Growth Prospects

According to S&P, the US tariff increases, along with retaliatory actions from other trading partners, have caused significant market turbulence and disrupted global supply chains. The agency refers to this as a “seismic and uncertain shift” in global trade, which is creating turbulence in financial markets and is expected to negatively affect India’s economic performance.

The agency’s latest economic update also pointed out that the rising import tariffs, ongoing trade tensions, and market instability are shocking the global system, affecting confidence, market prices, and broader economic expectations. These factors have led to a recalibration of growth projections for India.

This marks the second consecutive reduction in India’s growth forecast for FY26. Earlier, in March 2025, S&P had already reduced its forecast for FY26 by 20 basis points from 6.7% to 6.5% due to similar concerns regarding global trade dynamics. The new reduction highlights that the spillover effects of the US tariff policy are more substantial than initially expected.

Impact on India’s Economic Outlook

The latest adjustments also take into account the downside risks to the baseline projections. These risks are related to a stronger-than-expected spillover from tariff disruptions into India’s real economy, which could further hinder domestic growth and investment activity. S&P highlighted that the long-term configuration of the global economy, especially the role of the US, remains uncertain, adding more volatility to the global economic landscape.

In terms of China, the agency forecasts a slower growth trajectory due to the continued effects of US tariffs. It now expects China's GDP growth to be 3.5% in 2025 and 3% in 2026, down from previous projections of 4.1% and 3.8%, respectively. The significant tariff hikes will likely result in a sharp decline in China’s exports to the US, with an expected overall export contraction of more than 5% in 2025 and 6% in 2026. However, domestic demand in China is expected to remain relatively stable due to policy support, which will partially offset the impact of falling exports.

India’s Relative Position in Global Uncertainty

Despite the downgrades, S&P’s latest projections still reflect India's resilience in the face of global challenges. India continues to be one of the fastest-growing economies in the world, benefiting from a strong domestic demand, robust services sector, and improving industrial output. However, the global trade shocks are likely to hinder export-led growth, and continued uncertainty in global policy dynamics could affect India’s investment climate.

The Reserve Bank of India (RBI) also echoed similar concerns in its own growth projections, cutting India’s FY26 growth forecast by 20 basis points to 6.5%, citing global trade disruptions and ongoing policy uncertainty.

Broader Global Economic Impact

S&P’s global growth forecast has also been revised down by 30 basis points for the calendar years 2025 and 2026. All regions are expected to be negatively impacted by these trade policy shifts, which are expected to affect global demand and supply chains, leading to slower economic activity worldwide.

India’s growth outlook remains dependent on domestic factors, including consumer demand, government policy responses, and the ability to adapt to changing global conditions. However, with the US-China trade dynamics continuing to unfold, India’s economic performance will likely face increased volatility in the short to medium term.

The Path Ahead for India

Looking forward, India’s policymakers may need to counterbalance the external trade risks with stronger domestic reforms to maintain the country’s growth trajectory. The government has already undertaken several measures to bolster infrastructure development, promote foreign direct investment (FDI), and improve the ease of doing business. If successful, these efforts may help mitigate the risks posed by global uncertainties and allow India to continue its path toward inclusive growth.

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