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US tariffs fail to dent India’s FY26 GDP outlook: BofA Securities maintains projection at 6.5% – Here’s why
BofA Securities has retained India’s FY26 GDP growth forecast at 6.5 per cent despite fresh US tariffs, citing the economy’s resilience and supportive domestic factors.
While the Indian economy has remained resilient despite global uncertainties on the back of US tariffs, BofA Securities retained its full year GDP number at 6.5 per cent with downside risks for both FY26 and FY27 growth projections. “We believe the RBI would prioritize financial stability, and while it manages downside growth risks, we do not see the RBI being reactive, given the ongoing uncertainty of discussions. For now, we maintain our full year GDP number at 6.5 per cent,” said Rahul Bajoria, Head of India and ASEAN Economic Research, BofA Securities.
Several analyses, including those from BofA Securities and S&P Global, suggest that despite the imposition of US tariffs, India’s FY26 GDP outlook remains resilient, with BofA maintaining its projection at 6.5%.
Here’s a look at the reasons behind this assessment:
1. Strong domestic demand and consumption
Robust Rural Demand: A good monsoon season is expected to augment rural demand, playing a crucial role in supporting household consumption growth.
Government Schemes and Tax Benefits: Initiatives like the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), coupled with recent tax cuts, are boosting aggregate demand, particularly in rural areas.
Ease in Inflation: Moderating inflation, largely due to easing food prices and proactive government intervention, provides more disposable income for consumers.
2. Infrastructure push and capital expenditure
Public Spending: Increased public expenditure on infrastructure projects under schemes like the National Infrastructure Pipeline (NIP) and PM Gati Shakti is driving economic activity and employment generation.
Crowding In Private Investment: The government’s capex push, coupled with initiatives like the 50-year interest-free loans to states, is expected to encourage private sector participation and investment growth.
Improved Capital Goods IP: Improvement in capital goods industrial production signals a rebound in investment activity.
3. Services sector momentum
Robust Services Growth: India’s services sector continues to be a major driver of growth, with IT, financial services, and professional services supporting employment and value addition, according to the Economic Survey 2024-25.
Resilient IT Exports: Despite global slowdowns, India’s IT and IT-enabled services exports remain strong, ensuring steady foreign exchange inflows.
4. Manufacturing growth and supply chain realignment
Government Initiatives: The Production-Linked Incentive (PLI) schemes are attracting investment and boosting manufacturing in key sectors like electronics, pharmaceuticals, and automotive.
China+1 Strategy: Global companies are diversifying their supply chains, viewing India as an attractive alternative to China, which could lead to increased manufacturing activity and foreign direct investment (FDI).
5. Strengthened financial sector
Improved Credit Conditions: The health of India’s banking sector has significantly improved, leading to better credit transmission and access to capital for businesses, especially MSMEs.
Stable Monetary Policy: The Reserve Bank of India’s (RBI) cautious stance, along with frontloaded rate cuts earlier in the year, aims to ensure financial stability and support growth, according to the Financial Express.
6. Policy reforms and stability
Commitment to Reforms: The government’s continued focus on economic reforms and improving the ease of doing business enhances India’s attractiveness as an investment destination.
Fiscal Prudence: Efforts towards fiscal consolidation and prudent monetary policy create a stable macroeconomic environment, providing a buffer against external shocks.
In essence, while the US tariffs introduce some uncertainty and may have a minor, short-term impact, India’s economy benefits from a robust domestic demand base, an active government-led infrastructure drive, a thriving services sector, and ongoing policy reforms, which collectively contribute to its resilience and enable BofA Securities to maintain its optimistic GDP growth forecast for FY26.
Sudheendra Kumar ( Mobile /WhatsApp: 91-9820088394)
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