India's Vast Domestic Market offsets the Impact of US Tariff Rise: Fitch

Fitch, the global ratings agency, stated on Wednesday that India's expansive domestic market, which lessens dependence on external demand, is likely to shield the country from the impact of the US tariff increase. Accordingly, growth in the economy is expected to be at 6.5% by FY26.

Ratings agency Fitch has retained its growth forecast for India for FY26 at 6.5% but has increased its estimates for FY27 to 6.3% from the 6.2% which was estimated in December.
Fitch's forecast edges slightly higher than that of the OECD, which has projected a growth rate of 6.4% for FY26, and also lower than that of the Reserve Bank of India, which stands at 6.7%.

Indeed, the latest report by Morgan Stanley labels India "the best positioned country in Asia" in light of the global uncertainty prompted by US President Donald Trump's threats regarding tariff hikes-a situation characterized by low exports-to-GDP ratios and sound fundamentals.

“While India is exposed to direct tariff risks, we believe on balance India is less exposed to global goods trade slowdown considering that it has the lowest goods exports to GDP ratio in the region,” the report stated.

The Indian economy gained momentum, expanding by 6.2% in the third quarter of the current financial year, rebounding from a near two-year low of 5.6% in the July-September period.

“We do not think that this soft patch will translate into a prolonged slump in economic activity. Consumer and business confidence remain strong; a push for infrastructure expansion supports investment, capacity utilisation remains high; monthly trade data show a sharp pick-up in exports in October,” the Fitch report stated.

The report forecasts a 6.4% GDP growth for the current financial year. Fitch has maintained India's inflation forecast at 4% for FY26, while revising the FY27 forecast upwards to 4.3%, from the previously projected 4%.

Fitch is more optimistic about the RBI going in for another rate cut as inflation has come down.

“The RBI began loosening monetary policy in early February with a 25 basis points cut in the repo rate to 6.25 per cent. We expect two further cuts in the policy rate this year, so that the policy rate will be 5.75 per cent by December 2025,” the report said.

Global growth was downgraded by 0.3 percentage points by Fitch- that is, the 2024 world economic growth estimate comes down to 2.3% vis-à-vis its previous projection of 2.9%.