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India’s GDP to grow 6.5% in FY26 driven by consumption & tax cuts: S&P
Recent reductions in goods and services tax (GST) rates, combined with income tax cuts and interest rate reductions this year, will strengthen middle-class consumption and support household spending. This shift toward consumption-led growth comes as India navigates capital outflows and currency weakness triggered by unexpectedly high US tariffs and delays in a formal trade deal.
Uncertainty is likely to ease once the US trade pact favourable to India comes into force, boosting confidence and aiding labour-intensive export sectors.
India’s GDP to grow 6.5 per cent in FY26 driven by resilient consumption boosted by GST cuts, lower taxes and reduced interest rates, according to S&P.
Asia-Pacific growth remains steady, with China’s exports outperforming and regional demand supported by tech shipments, policy easing and lower oil prices.
Currencies are expected to firm slightly by 2026.
Asia-Pacific
S&P’s report also presented a broader picture of Asia-Pacific growth dynamics. China’s GDP grew 4.8 per cent year-on-year in the third quarter of this year, surpassing expectations and nearing its 2025 growth target of about 5 per cent. The upside surprise came from strong export performance as Chinese firms redirected shipments to other markets amid sharply reduced exports to the US. However, domestic demand weakened, with investment slowing due to prolonged real estate stress, overcapacity in manufacturing, and tighter local government spending. S&P has revised China’s 2026 GDP forecast up to 4.4 per cent from 4 per cent following tariff reductions by the US.
Across the rest of Asia-Pacific, both exports and domestic demand held firm through the third quarter. Strong global demand for tech products such as semiconductors supported shipments, while emerging markets benefitted from resilient labour markets, lower oil prices and policy support, including interest rate cuts and fiscal easing in some economies.
GDP growth for Asia-Pacific for 2026 excluding China is expected to rise 0.2 percentage points to 4.2 per cent, with consumer inflation remaining low due to moderate energy prices and export diversification away from the US.
Monetary policy and inflation trends
In Japan, the new government is expected to continue fiscal easing aimed at reducing household living costs, especially for low-income households. This will help moderate inflation and strengthen real incomes in 2026.
The Bank of Japan is set to maintain its gradual tightening approach, with one more 25-basis-point rate hike expected in December and only one increase projected for 2026.
Australia is seeing a steady recovery in household spending supported by lower interest rates and rising housing prices, with consumption forecast to grow solidly next year.
Indonesia and the Philippines have experienced currency weakness driven by protests, lower interest rates and reduced capital inflows.
Meanwhile, South Korea, Taiwan and Japan have seen depreciation due to portfolio outflows and expectations of large US-linked investments under new trade pacts.
Japan’s currency is also influenced by Prime Minister Sanae Takaichi’s preference for looser monetary policy. In contrast, the Malaysian ringgit and Thai baht have stabilised, supported by investment inflows into sectors such as data centres and initiatives to repatriate export earnings.
S&P forecasts a mild appreciation of Asia-Pacific currencies against the US dollar by end-2026 as trade flows realign and external volatility eases.
Fibre2Fashion News Desk (CG)