US reciprocal tariffs will have limited impact on India – S&P

Delhi: S&P Global Ratings on Wednesday said the impact of US reciprocal tariffs on India will be limited, as the economy is domestically focused and has low reliance on exports.Yiphorn Phua, director, sovereign and international public finance ratings, Asia-Pacific region, S&P Global, also said India will register 6.7-6.8 per cent GDP growth over the next two years.

He said the FY2025-26 Budget will boost growth for the next few years, mainly due to domestic demand through tax cuts for households and with GDP growth now normalising to a more “sustainable level”. “The government is heavily focused on investment-led growth and reforms in the agricultural sector. However, we think economic expansion in India is set to normalise towards a more sustainable level after real growth averaged 8.3 per cent in the past three years following the pandemic.

“Right now, we forecast that consumer spending and public investment will keep real GDP growth at around 6.7 to 6.8 per cent over the next two years. These growth rates, even if slower than previously expected, put India above sovereign peers at similar income levels, and we believe this will continue to support fiscal revenue growth despite the income tax cut,” Phua said. According to official estimates, the Indian economy will grow at 6.4 per cent in the current fiscal year (2024-25), down from 8.2 per cent in 2023-24. S&P Global Ratings has assigned India a ‘BBB-‘ rating, the lowest investment grade. The outlook on the rating was changed from stable to positive in May, 2024. He further said that India’s fiscal metrics remain quite positive and tax revenues as a share of GDP have increased over the last few years to currently around 12 per cent.