Fitch Ratings has made headlines once again by adjusting its economic growth predictions for India. The agency has lowered its growth forecast for the financial year that wrapped up in March, as well as the current fiscal year, each by 10 basis points. Additionally, a significant 40 basis-point reduction has been applied to the global growth outlook due to the intensifying global trade war.

Adjusted Growth Projections for India

According to Fitch, India’s economy is now anticipated to expand at 6.2% for FY25, a dip from the previous estimate of 6.3% made just last month. For the current financial year, the projection stands at 6.4%, reduced from an earlier forecast of 6.5% released in March. Interestingly, the agency has maintained its 6.3% growth estimate for the subsequent fiscal year, providing a glimmer of hope amid the adjustments.

• FY25 Growth Rate: Adjusted to 6.2% from 6.3%
• Current Fiscal Year Growth Rate: Adjusted to 6.4% from 6.5%
• Next Fiscal Year Growth Rate: Maintained at 6.3%

Inflation and Interest Rate Expectations

Fitch also predicts that the consumer price index (CPI) inflation will settle at 3.9% by the end of this calendar year, a slight decrease from the previous forecast of 4%. Furthermore, the Reserve Bank of India (RBI) is expected to adjust its policy interest rate to 5.5% by year-end, following a recent 25 basis point cut to 6% earlier this month.

Tariff Concerns Impacting Economic Predictions

The agency pointed out that tariff increases from the US administration, particularly the so-called "Liberation Day" tariffs, have exceeded expectations. Although these tariffs were temporarily paused and replaced with a universal 10% rate for 90 days, the tariff landscape has been volatile. Retaliatory measures between China and the US have pushed bilateral tariff rates above 100%, and the average effective tariff rate in the US has surged to 23%, the highest seen since 1909. Fitch anticipates that this elevated tariff scenario will persist before gradually decreasing to 60% by 2026.

• US Average Effective Tariff Rate: Increased to 23%
• Projected US Tariff on China: Expected to remain above 100% before dropping to 60% in 2026

Global Economic Outlook and India’s Position

While the downward adjustment for India’s growth is modest compared to the more significant reductions for the US and China—where growth estimates have been reduced by 50 basis points to 3.9% and 1.2%, respectively—Fitch indicates that the weakening US dollar is allowing other central banks more flexibility in their monetary policies. This situation could lead to deeper rate cuts by the European Central Bank and in various emerging markets.

Moreover, with lower oil prices on the horizon, Fitch has revised its 2025 Brent oil price assumption down by $5 to $65, potentially paving the way for more aggressive monetary easing outside the US as growth slows.

India’s Growth Strategy

Indian policymakers remain optimistic, projecting a growth rate between 6.3%-6.8% for this financial year, bolstered by expectations of an above-normal monsoon and limited adverse effects from the ongoing tariff war. The government is banking on this growth range, while the RBI anticipates a 6.5% expansion, with CPI inflation expected to hover around the target of 4%.

In summary, while challenges loom on the horizon due to global trade tensions and inflationary pressures, India’s economic outlook remains cautiously optimistic.