India is expected to remain one of the fastest-growing emerging market economies in Asia through this decade, with GDP holding above 6%, even as fresh US tariffs bite into export growth, according to BMI, a Fitch Solutions company. The Fitch company said, the drag from Washington’s 50% ‘reciprocal’ tariffs could be cancelled out by Prime Minister Narendra Modi’s Goods and Services Tax (GST) reform, which aims to cut rates and boost private consumption from October.
“We forecast India’s economic growth to steadily slow to just above 6.0% by the decade’s end, slightly below the 2010-2019 pre-pandemic average of 6.5%, yet still positioning India among Asia’s fastest-growing economies,” BMI said. It added that its bullish outlook stemmed from India’s early stage in the investment-and-exports-led growth model that had propelled China and the Asian Tiger economies. Productivity is projected to grow around 5% over the coming decade, providing substantial momentum to GDP growth.
The outlook comes despite the United States doubling ‘reciprocal’ tariffs on Indian goods to 50% from August 27. BMI said it had revised down its GDP growth forecasts for FY2025/26 and FY2026/27 by 0.2 percentage points each. “We previously estimated that a 25-percentage point increase in the ‘reciprocal’ tariff would slow real GDP growth in FY2025/26 (April-March) and FY2026/27 by a further 0.2%. As such, we have revised down our forecasts accordingly and now expect the economy to expand by 5.8% in FY2025/26 and 5.4% in FY2026/27,” it said.
India has refused to yield to US President Donald Trump’s tariff escalation. The stance is not reckless bravado but calculated resilience, backed by macroeconomic stability, a consumption-led economy, diversified trade partnerships and the government’s willingness to use adversity to usher in reforms. India’s manageable debt levels, strong forex reserves and contained current account deficit insulate it from external shocks. The country remains on course to remain the fastest-growing major economy in the world, with GDP growth rates above global averages.
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Modi’s proposed GST reform is expected to provide a crucial counterweight to Trump tariff pressures. The overhaul would simplify the four-tier system of rates—ranging from 5% to 28%—to a two-tier structure, with most goods taxed at either 5% or 18%. Consumer durables such as washing machines, air conditioners and refrigerators are among the products expected to be charged lower rates.GST has become the second-largest source of fiscal revenue after income tax since its introduction in July 2017, contributing around 30% of total revenue and 2.5% of GDP in FY2024/25, the Fitch company noted. BMI said the fiscal impact of reform would probably be mild. Tax experts, including those at Emkay Global Financial Services, estimate the changes will reduce collections by $13-20 billion. If implemented from October 1 as a “Diwali gift” to the middle class, the government could lose between 0.1% and 0.2% of GDP in FY2025/26 and double that in FY2026/27.Also Read: PM Modi vows ‘arsenal of reforms’ after GST, Income Tax overhaul
“In other words, depending on the specifics, the GST reform could cancel out the drag on growth from the tariffs. Given that the details have yet to be confirmed, we highlight the GST reform as a slight upside risk to our growth forecast for now,” BMI said.
Unlike export-dependent economies, India’s GDP is largely driven by domestic consumption, which accounts for over 60% of output. This cushions the economy against external shocks. Analysts say lower tax rates on essential goods, higher compliance and rising disposable incomes will strengthen domestic demand.
An SBI Research report estimates that the proposed GST reform, combined with recent income tax cuts, could lift consumption by Rs 5.31 lakh crore, equal to around 1.6% of GDP. Of this, Rs 1.98 lakh crore would come from GST rate cuts on household goods. The increase in spending is expected to have a multiplier impact across sectors.
Fitch Ratings this week retained India’s sovereign rating at ‘BBB-’ with a stable outlook, the lowest investment grade, unchanged since 2006. The move came days after S&P upgraded India’s rating for the first time in 18 years to BBB. Moody’s continues to rate India at Baa3, where it has been since 2020. Fitch said India had “robust growth and solid external finances” but continued to point to weak fiscal metrics, with deficits, debt and debt servicing higher than peers.
S&P, in its upgrade, said the “effect of US tariffs on the Indian economy will be manageable,” citing India’s relatively limited dependence on trade and the fact that about 60% of growth comes from domestic consumption.
Also Read: PM Modi is seizing on Trump’s tariffs to cut India taxes, red tape
Demographics offer additional tailwinds
BMI also pointed to demographic tailwinds. India is set to add 80 million working-age individuals in the next decade, while the total fertility rate has fallen just above 2.0, reducing the dependency ratio to around 35%. This could free up resources for investment, similar to China during its investment boom.
Its bullish scenario sees growth reaching 7.0% if reforms such as the 2020 labour law changes are implemented at state level, female labour participation improves, and healthcare spending rises. Conversely, growth could slip to 5.5% if job creation fails to keep pace with the expanding workforce. “The pace of reform implementation remains crucial, as India’s complex political system with its checks and balances often impedes swift policy changes, as evidenced by stalled labour reforms at the state level,” BMI said.
Strong consumer outlook
BMI further said it has a very positive outlook for consumers in India over 2025 and 2026, with high-frequency data showing rising confidence across rural, semi-urban and urban areas, alongside inflation at an eight-year low. It expects consumer spending on big-ticket items to strengthen as household finances stabilise.
“Household spending in India will post strong growth over 2025, with real household spending (measured at 2010 prices) rising 6.9% y-o-y over the year. The growth in consumer spending over 2025 will come as India’s wider economy growth continues and approaches a more stable medium-term (2025-2029) trajectory, supported by growing domestic demand brought about the continuous expansion of the Indian middle class. Inflation is also under control,” it said.
The report added that household spending growth in 2025 would outpace pre-pandemic levels, which were at 5.4% in 2019. Growth is forecast to taper to 5.5% in 2026, taking real spending to Rs 244 lakh crore.
BMI highlighted that inflation had moderated to 1.55% in July 2025, the ninth consecutive month of easing and the lowest level since June 2017. Food inflation slowed to 1.8%, its lowest since January 2019. Its country risk team cut the 2025 inflation forecast from 3.0% to 2.0% and projected 2026 inflation to average 3.5%, still below the 2019 pre-pandemic print of 4.8%. The stability of prices is expected to give households more room to spend, particularly on big-ticket items.