India's economic growth is projected to remain strong, driven by robust domestic consumption, according to a recent forecast by S&P Global Ratings. The agency expects India's GDP to grow at 6.5% in fiscal year 2026 and 6.7% in fiscal year 2027. This positive outlook is largely attributed to tax reductions and easing monetary policies, which are expected to boost consumer spending.

S&P Global Ratings anticipates that domestic demand will continue to be a key driver of growth, even amidst the impact of elevated US tariffs on some sectors. The agency's projection aligns with the Reserve Bank of India (RBI), which has forecasted a 6.8% growth for FY26.

Several supportive measures are expected to contribute to this growth. The Union Budget for FY26 raised the income-tax rebate limit from ₹7 lakh to ₹12 lakh, providing significant relief to the middle class. The RBI's 50-basis-point rate cut in June, which reduced the policy rate to a three-year low of 5.5%, is also expected to stimulate economic activity. Further bolstering consumption, GST rates have been reduced on nearly 375 mass-consumption items.

S&P expects consumption to overtake investment as the primary growth engine in both FY26 and FY27. This shift is attributed to the combined effect of reduced GST rates, income tax rebates, and lower interest rates, which are expected to increase the spending capacity of middle-class households. A favorable monsoon season is also expected to improve agricultural output and boost rural incomes, further stimulating demand.

However, S&P also noted potential headwinds. Higher US tariffs continue to weigh on India's export-oriented manufacturing sectors, potentially limiting growth from global demand. The agency also pointed out that the new US trade policy approach is diverting resources toward negotiating exemptions rather than boosting productivity. The agency projects inflation to moderate to around 3.2 percent, which could further support real household purchasing power.

S&P suggests that a potential trade agreement between India and the US could alleviate uncertainty, improve business confidence, and benefit labor-intensive sectors. The agency believes that domestic demand will remain strong, helping to offset some of the negative impacts of US tariffs.

In the April-June quarter of FY26, India's real GDP grew by 7.8%, the fastest pace in five quarters. The official GDP data for the July-September quarter is scheduled for release on November 28, 2025. While government capital expenditure continues to support infrastructure development, a stronger revival in private investment is needed to further boost productivity and enable India to achieve a higher growth trajectory.