India’s GDP growth forecast to 6.5% as world economy stutters

A leading ratings agency has cut India’s GDP growth projections to 6.5% for the next financial year, predicting that economies in Asia will feel the strain of rising US tariffs and pushback on globalisation.

In its Economic Outlook for Asia-Pacific (APAC), S&P Global Ratings said that despite these external strains, it expects domestic demand to remain solid in most emerging-market economies.

“India’s GDP will grow 6.5% in the fiscal year ending March 31, 2026, we expect. Our forecast is the same as the outcome for the previous fiscal year, but less than our earlier forecast of 6.7%,” S&P said.

Slowing food inflation, tax benefits announced in the country’s budget for the fiscal year ending March 2026, and lower borrowing costs will support discretionary consumption in India, S&P said.

The global credit rating agency expects central banks in the Asia-Pacific region to continue cutting benchmark interest rates through this year.

The S&P Economic Outlook said Asia-Pacific economies will feel the strain of rising US tariffs specifically and a pushback on globalisation more generally.

It said: “However, we see domestic demand momentum broadly holding up, especially in the region’s emerging-market economies.

“Given the volume of policy measures and external pressures hitting Asia-Pacific, the robustness of our forecasts underscores the resilience of the regional economies.’

Domestically, immigration reduction, deregulation and cuts to taxes and government spending are in focus.

Externally, US import tariffs are rising across the board. So far the new US government has imposed an additional 20% tariff on imports from China; 25% levies on some imports from Canada and Mexico, with levies on other products postponed for a month; and a global 25% tariff on steel and aluminium.

“The heightened uncertainty about US economic policy and its impact, notably around tariffs, is weighing on investment in the US and elsewhere,” S&P said.

India expected to remove 6% ‘Google tax’ from 1 April

India is set to remove the 6% Equalisation Levy, known as the ‘Google tax’, on online advertising services provided by foreign tech companies including Google and Meta. The tax will be scrapped from 1 April 2025, as part of amendments to the Finance Bill, news agency Reuters has reported.

This move comes amid efforts to improve trade relations with the US, which had previously criticised the levy and threatened retaliatory tariffs. The removal of the tax is expected to benefit tech companies, advertisers and India’s digital economy.

The Equalisation Levy was introduced in 2016 to tax payments made by Indian businesses to foreign companies for digital advertising services. It was aimed at ensuring that global tech firms, which earn significant revenue from Indian users but do not have a physical presence in the country, contribute to India’s tax system.

Initially set at 6% for online advertising services, the levy was later expanded in 2020 to include a 2% tax on all e-commerce companies with annual business exceeding Rs 2 crore (about £180,000) in India.

The 2% levy was withdrawn last year following an agreement between India and the US. Now the government plans to remove the original 6% tax as well, Reuters said.

The decision to remove the tax is part of India’s negotiations with the US to avoid trade conflicts. In the past, the US had threatened to impose tariffs of up to 25% on Indian some products in response to the Equalisation Levy.

Some experts believe the tax removal will help improve India-US relations and prevent any future trade disputes. Some countries, including the UK, are also considering withdrawing similar digital taxes to avoid tensions with the US.

“Removal of the equalisation levy is a smart move by the government, as collections weren’t very high, and it was a concern for the US administration,” Sudhir Kapadia, senior advisor at EY told Reuters.

The removal of the Google tax is expected to provide multiple advantages to global tech firms operating in India. With the 6% tax gone, advertising on platforms like Google and Meta will become cheaper for Indian businesses, encouraging more digital ad spending.

And lower costs could attract more advertisers, boosting revenues for digital platforms.