The Asian Development Bank (ADB) on Tuesday retained India’s growth outlook at 6.5 per cent for the current fiscal year (FY2025, ending March 2026) and projected the same pace for FY2026, even as newly imposed United States tariffs weigh on the export sector.
According to the Asian Development Outlook released on 30 September, the forecast for FY2025 remains unchanged from July, while the FY2026 estimate has been revised down from 6.7 per cent to 6.5 per cent. The downgrade reflects expectations of weaker merchandise exports, though resilient domestic demand and robust services exports are seen cushioning the blow.
“Despite ongoing trade challenges, we remain optimistic about India’s long-term growth trajectory,” said Mio Oka, ADB’s Country Director for India. “The overall impact on GDP is expected to be contained due to India’s relatively lower exposure to the US market, increased exports to alternative destinations, and a pickup in domestic consumption.”
The report notes that India’s economy expanded 7.8 per cent in the first quarter of FY2026, driven by household consumption and government spending. However, growth is likely to moderate in the second half as additional US tariffs on Indian shipments take effect.
Policy Support And Risks
ADB said recent policy measures—including cuts in GST rates, reductions in personal income tax, and new employment-linked fiscal incentives—will support both rural and urban consumption. Services are expected to remain the key growth driver, while agriculture benefits from favourable monsoon rainfall. Manufacturing will stay under pressure from global trade frictions, though housing construction will continue to remain robust.
Inflation is projected to ease to 3.1 per cent in FY2025, before moving closer to the Reserve Bank of India’s 4 per cent target the following year. After three policy rate cuts in 2025, the repo rate now stands at 5.5 per cent, the lowest since August 2022. Further easing is likely to be slower, the report added.
On the fiscal front, ADB expects the deficit to exceed the government’s 4.4 per cent of GDP target this year as lower tax revenues, partly due to GST reductions, outpace spending restraint. Even so, the shortfall is forecast to remain below last year’s 4.7 per cent of GDP.
The current account deficit is projected to widen moderately from 0.6 per cent of GDP in FY2025 to 0.9 per cent this year and 1.1 per cent in FY2027. While petroleum imports are expected to decline with lower crude prices, overall exports will be subdued.
The report flagged several risks, including escalation of trade tensions, global geopolitical uncertainties, and domestic disruptions from recent flood damage. On the upside, growth could surprise if Washington reduces tariffs on India to align with those imposed on other Asian economies. |
