India’s Vast Domestic Market to Mitigate Impact of US Tariff Increase: Fitch
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Synopsis
Fitch reports that India’s large domestic market will help buffer against US tariff hikes, forecasting a steady growth rate of 6.5% for FY26. The agency also maintains its inflation predictions while suggesting the RBI may further cut interest rates as inflation decreases.
Key Takeaways
- India's domestic market size mitigates external risk.
- Fitch maintains FY26 growth forecast at 6.5%.
- RBI may implement further rate cuts.
- Consumer confidence remains high, supporting growth.
- Global growth forecast lowered to 2.3%.
New Delhi, March 19 (NationPress) The extensive nature of India’s domestic market, which minimizes dependence on foreign demand, is anticipated to protect the nation from the US tariff increase, with the economy projected to sustain a growth rate of 6.5 percent in FY26, according to the global ratings agency Fitch on Wednesday.
The agency maintained its forecast for India’s FY26 growth at 6.5 percent while revising its FY27 growth estimate upward to 6.3 percent, compared to 6.2 percent from its December update.
Fitch’s forecast represents an improvement over the OECD, which anticipates 6.4 percent growth in FY26, but falls short of the Reserve Bank of India’s estimate of 6.7 percent.
A recent report from Morgan Stanley also indicated that India is the “most resilient country in Asia” amidst the global uncertainty sparked by US President Donald Trump’s threats to increase tariffs, owing to the country’s low goods exports to GDP ratio and robust fundamentals.
“While India faces direct tariff risks, we believe that, overall, India is less vulnerable to a slowdown in global goods trade due to its lowest goods exports to GDP ratio in the region,” the report mentioned.
The Indian economy showed signs of recovery, achieving a growth rate of 6.2 percent in the third quarter of the current fiscal year, rebounding from a near two-year low of 5.6 percent in the July-September quarter.
“We do not anticipate that this temporary downturn will lead to a prolonged economic slump. Both consumer and business confidence remain robust; efforts to expand infrastructure bolster investment; capacity utilization is high; and monthly trade data indicate a significant increase in exports in October,” the Fitch report stated.
The report projects a 6.4 percent GDP growth for the current fiscal year.
Fitch keeps its inflation forecast for India steady at 4 percent, while raising the FY27 estimate to 4.3 percent from the previously projected 4 percent.
Fitch expresses greater optimism about the Reserve Bank of India potentially implementing another rate cut as inflation rates have decreased.
“The RBI initiated a relaxation of monetary policy in early February with a 25 basis points cut in the repo rate to 6.25 percent. We expect two additional cuts in the policy rate this year, bringing it to 5.75 percent by December 2025,” the report noted.
Fitch has revised down its global economic growth forecast by 0.3 percentage points to 2.3 percent, compared to 2.9 percent in 2024.
