Kotak Mahindra Bank’s Chairman, C S Rajan, has expressed caution about India’s economic growth prospects for the current fiscal year, citing the recent imposition of 25% tariffs on Indian exports by the US as a significant cause for uncertainty. As a result, the bank expects India’s GDP growth to slow down to 6.2% in FY26. This forecast is more pessimistic than the World Bank’s projection of 6.3% growth, but closer to the government’s estimate of 6.3-6.8% growth for 2025-26.

Despite the slowdown, India is still expected to be the world’s fastest-growing major economy, with the government citing robust macroeconomic fundamentals and proactive policy measures as key factors supporting growth. In the previous financial year, nominal GDP grew by 9.9%, while real GDP increased by 6.5%, indicating sustained economic momentum.

However, recent high-frequency indicators suggest a softening of economic activity, which is also reflected in slowing credit growth. The Reserve Bank of India (RBI) has responded to this slowdown by cutting the policy repo rate by 100 basis points to 5.5% and providing aggressive liquidity measures to stimulate growth.

On a positive note, inflation trends have turned benign in the current financial year, with recent readings dropping to as low as 2.1%. This has created a favorable environment for the RBI to adopt a more accommodative monetary policy stance. Overall, while there are challenges ahead, India’s economy is expected to remain resilient, driven by its strong fundamentals and supportive policy measures.

The imposition of tariffs by the US has introduced a new layer of uncertainty into India’s economic outlook, and the government will need to navigate this challenge carefully to ensure that growth momentum is maintained. Nevertheless, with the right policy responses, India is well-positioned to continue its growth trajectory and achieve its development goals. The government’s focus on domestic revenue mobilization and increasing resilience against future shocks will be crucial in this regard.