ADB trims FY26 growth forecast to 6.5% on baseline US duty impact

New Delhi: The Asian Development Bank (ADB) on Wednesday lowered India's growth forecast for FY26 to 6.5% from 6.7% citing the impact of baseline tariffs imposed by the United States and impact of policy uncertainty on investment.

Despite the downgrade, India continues to be one of the fastest growing major economies globally. The Reserve Bank of India (RBI) also projected India's gross domestic product (GDP) growth at 6.5% for FY26 from 6.7% earlier. The Indian economy grew by 6.5% in FY25.

According to the July Asian Development Outlook 2025, domestic economic activity remains resilient, supported by strong consumption, particularly from a revival in rural demand. "Services and agriculture sectors are expected to be key drivers of growth, the latter supported by a forecast of above-normal monsoon rains," it said.


The Manufacturing and Services Purchasing Managers' Index (PMI) indicates stronger performance in India in the first quarter of this fiscal year, compared to other economies in the Asia Pacific region.

ADB also noted that India's fiscal position remains healthy, aided by higher-than-expected dividends from the RBI. The central government is on track to meet its fiscal deficit reduction target.

In comparison, growth projections for China, the largest economy in the region, are unchanged at 4.7% in 2025 and 4.3% in 2026. "Policy stimulus for consumption and industrial activity is expected to offset continuing property market weakness and softening exports," the ADB said.

For South Asia, ADB revised the 2025 growth forecast down to 5.9% from 6% estimated in the April outlook.

"Asia and the Pacific has weathered an increasingly challenging external environment this year. But the economic outlook has weakened amid intensifying risks and global uncertainty," said Albert Park, ADB chief economist. "Economies in the region should continue strengthening their fundamentals and promoting open trade and regional integration to support investment, employment, and growth," he added.

Looking ahead, India's GDP growth is expected to improve to 6.7% in FY27 driven by rising investments, under the assumption of improved policy clarity and favourable financial conditions, following recent monetary easing. "The baseline expectations of lower crude oil prices will also support economic activity in FY2025 and FY2026," said the ADB.

In June, the RBI's monetary policy committee (MPC) cut the repo rate by 50 basis points to 5.5% and reduced cash reserve ratio by 100 bps to 3%, adding ₹2.5 lakh crore in liquidity into the banking system.The next MPC meeting is scheduled for the first week of August.

ADB also revised its inflation forecast for India to 3.8% in FY26 from 4.3% estimated earlier, "reflecting faster-than-expected decline in food prices due to better agricultural production."

Ind-Ra cuts FY26 forecast to 6.3%

India Ratings and Research (Ind-Ra) Wednesday revised India's growth forecast for FY26 to 6.3% from the previous estimate of 6.6%, due to tariff hikes by the US and a weaker investment climate. The Indian economy is facing both headwinds and tailwinds.

"Major headwinds are uncertain global scenario from the unilateral tariff hikes by the US for all countries and weaker-than-expected investment climate," said DK Pant, chief economist and head public finance at Ind-Ra.

"The major tailwinds are monetary easing, faster-than-expected inflation decline, and likely above-normal rainfall in 2025," he added.