Context:
Fitch Ratings has lowered India’s economic growth forecasts for both FY25 and FY26 by 10 basis points each, citing the ripple effects of a worsening global trade war.
Updated India Growth Forecasts:
- FY25 (ended March 2025): Revised to 6.2% (from 6.3%)
- FY26 (current fiscal): Revised to 6.4% (from 6.5%)
- FY27 (next fiscal): Retained at 6.3%
Inflation and Interest Rate Outlook
- CPI-based inflation is projected at 3.9% for calendar year 2025 (down from 4% earlier).
- RBI policy rate is forecast to fall to 5.5% by end-2025, following this month’s 25 bps rate cut to 6%.
Global Factors Driving the Revision
Fitch highlighted that the escalation in the US-China trade war—especially following the US administration’s “Liberation Day” tariff hikes—was a significant shock:
- US imposed near-universal 10% tariffs (now paused for 90 days).
- Bilateral tariffs between US and China have surged above 100%.
- US average effective tariff rate (ETR) has risen to 23%, the highest since 1909 (compared to 18% assumed earlier by Fitch).
- As a result, global growth forecast for 2025 has been cut by 40 basis points.
Implications for India
- Despite strong domestic fundamentals, India is not insulated from global headwinds, especially those affecting exports and trade flows.
- Lower inflation projections give the RBI headroom to maintain an accommodative stance to support growth.
- Continued geopolitical and trade tensions could pressure India’s trade balance and currency stability going forward.
Mint
