Standard & Poor’s (S&P) Global Ratings has revised India’s GDP growth forecast for FY26 upward from 6.3% to 6.5%, according to its recently published Economic Outlook Asia-Pacific Q3 report, dated June 25, 2025. The revision reflects a stronger-than-expected domestic demand scenario driven by structural economic factors, policy interventions, and favourable macroeconomic assumptions. This upgrade to India’s economic growth forecast is especially significant in a year marked by global headwinds, including trade protectionism, geopolitical instability, and regional conflicts that continue to disrupt traditional market flows.

India’s Economic Momentum in FY26

The S&P GDP forecast upgrade is based on several key assumptions. First, the expectation of a normal monsoon is seen as a crucial element in stabilizing agricultural output and rural consumption, which in turn supports broader economic activity. Second, easing crude oil prices are expected to improve India’s current account balance and fiscal stability, reducing import-related inflationary pressures. Third, income tax concessions recently announced by the Indian government are likely to boost disposable income, improving household spending patterns. Lastly, S&P anticipates a gradual monetary policy easing by the Reserve Bank of India (RBI), in line with broader Asia-Pacific trends, as inflation is not seen as a major threat in the region.

Domestic Demand: The Key Growth Driver

Despite global economic uncertainties, domestic demand remains the cornerstone of India's growth story in FY26. The resilience of consumption and investment cycles, supported by both public and private spending, has allowed India to absorb much of the external shocks. While exports may face pressure from slowing global trade and protectionist policies, internal consumption is expected to cushion the impact, preserving the country’s growth trajectory.

The India GDP forecast FY26 news reveals that the economic outlook 2025 has improved on the back of government policy stability, improved rural economic indicators, and rising investor confidence. These developments, in turn, enhance India’s attractiveness for foreign capital and strategic investments, especially as global supply chains are being restructured in the wake of disruptions caused by geopolitical developments and pandemic aftershocks.

Comparison with Global Economic Forecasts

While S&P has taken a relatively optimistic view, other institutions remain cautious. The World Bank has kept India’s FY26 GDP growth forecast at 6.3%, whereas the International Monetary Fund (IMF) projects 6.2%. These forecasts reflect broader concerns around rising trade tensions, particularly protectionist policies in the United States, and the ongoing Middle East conflict, which could increase global crude oil prices and pressure India's fiscal and external accounts.

However, S&P’s economic outlook Asia-Pacific 2025 report stands out in acknowledging the unique position of India within the global economic landscape. As countries realign supply chains to reduce dependence on singular regions, India emerges as a top beneficiary due to its large consumer market, improving infrastructure, favourable demographics, and strategic policy incentives.

Policy and Structural Strengths Driving Growth

The India economic momentum 2025 is being driven not just by cyclical factors but also by long-term structural reforms. Government initiatives in digital infrastructure, renewable energy, manufacturing incentives under PLI (Production-Linked Incentive) schemes, and tax simplification measures have laid a foundation for sustainable economic growth.

Additionally, financial inclusion, accelerated by UPI (Unified Payments Interface) adoption and widespread access to credit, has supported both urban and rural consumption cycles. Improved banking health, declining non-performing assets (NPAs), and stable currency performance have also contributed to a favourable investment climate in FY25-26.

S&P’s Projection: India as the Third Largest Economy by FY30-35

One of the bold claims made by S&P Global Ratings is that India is on track to become the third-largest economy in the world between FY30 and FY35. This projection underscores the long-term confidence global agencies have in India’s ability to navigate cyclical challenges and leverage demographic dividends and technological transformation.

Such a growth path assumes continued domestic reforms, enhanced ease of doing business, and successful integration with global value chains. If these trajectories remain on course, India will likely surpass major developed economies in terms of GDP size and purchasing power parity within the next decade.

Risks to the Outlook

While the S&P GDP forecast FY26 news is encouraging, the outlook is not without risks. Volatility in global energy prices, escalation of geopolitical conflicts, and tightening global financial conditions could impact both government budgets and corporate margins. Additionally, climate-related disruptions to agriculture could limit rural recovery, and any delay in expected monetary easing could affect credit growth and investment sentiment.

Moreover, despite improvements, India’s export sector remains vulnerable to external demand cycles. To sustain growth in a potentially volatile global environment, India will need to diversify export markets, enhance trade partnerships, and invest in upskilling its workforce to adapt to evolving global demands.

Conclusion: A Balanced but Optimistic View

The S&P upgrade of India’s FY26 GDP growth to 6.5% reflects a well-rounded analysis of the domestic strengths and external vulnerabilities influencing India’s economy. It reinforces the belief that resilient domestic demand, bolstered by policy support and favourable macroeconomic conditions, can drive sustained growth even in uncertain global conditions.

With India GDP growth forecast revised, stakeholders ranging from policymakers to investors and global observers are likely to view India as a bright spot in the global economy. The country’s ability to navigate challenges, capitalize on opportunities, and maintain macroeconomic stability will be critical as it inches closer to becoming the world’s third-largest economy.

The India GDP forecast latest update FY26 and the broader India economic outlook 2025 present a narrative of cautious optimism. As global economies grapple with volatility, India’s domestic demand growth and economic resilience offer a roadmap for inclusive and sustainable growth in the coming years.

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