Trade Toll: Fitch cuts India GDP growth forecast for FY25 to 6.2% and 6.4% for FY26

New Delhi: Fitch Ratings on Thursday lowered India’s economic growth forecast for the financial year that ended in March as well as the current fiscal by 10 basis points each, while making a sharp 40 basis-point cut in its global growth estimate for the current year in response to the severe escalation in the global trade war.

The rating agency said India’s economy is forecast to have grown at 6.2% in FY25, down from the 6.3% it had projected last month. In the current financial year, the Indian economy is expected to grow at 6.4%, down from 6.5% it had projected in March.

The rating agency in its latest world economic outlook, however, retained its 6.3% growth forecast for India for the next financial year.

Also read | India's economy strengthened in Feb, but external weakness a worry: Mint tracker

Consumer price index (CPI)-based inflation is expected to be 3.9% by the end of this calendar year, the agency said, a notch below its earlier forecast of 4%. Reserve Bank of India’s (RBI) policy interest rate is expected to reach 5.5% by this year end, the agency said.

Earlier this month, the RBI reduced the policy repo rate by 25 basis points to 6%.

Tariff concerns

The rating agency said the US administration’s ‘Liberation Day’ tariff hikes were far worse than expected.

While subsequently paused and replaced with a near-universal 10% rate for 90 days, the tariff shock prompted several rounds of retaliatory moves between China and the US, taking bilateral tariff rates over 100%, while the US average effective tariff rate (ETR) has risen to 23%, the highest since 1909 and well above the 18% the agency assumed in March.

“It is hard to predict US trade policy with any confidence, but Fitch now assumes the US ETR on China will remain above 100% for some time before falling back to 60% in 2026,” Fitch said.

Also read | Indian economy to grow 6.5% in FY26: Crisil

The downward revision of India’s growth rate is by a smaller measure, when compared to the revisions in the case of the US and China. Fitch lowered the 2025 growth estimates by 50 basis points for both China and the US to 3.9% and 1.2% respectively in its April estimate.

Fitch said the weakening of the US dollar has created more space for other central banks to ease monetary policy, and it expects deeper rate cuts from the European Central Bank and in emerging markets.

The agency also expects lower oil prices, and reduced its 2025 Brent oil price assumption by $5 to $65, which is expected to facilitate a faster pace of monetary easing outside the US as growth slows.

Policy makers in India are counting on a 6.3-6.8% growth this financial year on the basis of expected above-normal monsoon and minimal impact of the tariff war on the economy.

The government expects the economy to expand at 6.3-6.8% this fiscal, while the RBI expects a 6.5% growth. The central bank expects CPI inflation to remain at 4% this fiscal, which is its target.