INDIA Macro Economic Outlook Sep-2025
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India’s FY26 economic outlook continues to be besieged by worsening external headwinds. The imposition of 50% cumulative tariff by the US in two equal steps since Aug-25 will lead to erosion of India’s export market share. US tariffs would impart a downside to FY26 GDP growth to the extent of 0.5% with labor-intensive sectors such as Textiles, Leather, Gems & Jewellery, Auto components among others. The announcement of a GST restructuring however, would act as a strong partial antidote in providing a buffer to private consumption, amplified by the onset of the festive season. We estimate GST rationalization to add 0.2-0.3% to FY26 GDP growth. On a net basis, the robust Q1 GDP data and the stimulus from GST prompts us to maintain our FY26 GDP growth projection of 6.4%, despite external headwinds. Inflation remains benign, with CPI undershooting the lower bound of inflation tolerance for the ninth consecutive month in Aug-25. Taking on board the GST induced price cuts (as also greater than anticipated downside in food prices), we hold our FY26 CPI inflation projection at 2.6%. We also retain our 10Y g-sec yield at 6.30% for Mar-26. We maintain our call of moderate depreciation in the rupee towards 89.50 by Mar-26