ADB lowers India's FY26 growth forecast to 6.5% on US tariff impact, policy uncertainty

Mint

6 days ago

New Delhi: The Asian Development Bank (ADB) has trimmed its GDP growth forecast for India to 6.5% for FY26, down from its April estimate of 6.7%, due to concerns over the potential impact of the US tariffs and uncertainty surrounding related policy measures.
The Manila-headquartered organization also marginally lowered India's FY27 growth outlook to 6.7% from 6.8% earlier.
'In addition to the effects of lower globalgrowth and the direct impact of additional US tariffs on Indian exports, heightened policy uncertainty may affect investment flows,' ADB said in its Asian Development Outlook July 2025 report.
'Despite this, economic activity remains robust, with domestic consumption set to grow strongly on the back of the revival of rural demand,' it added.
To be sure, global forecasts for India's growth remain mixed.
The World Bank expects India's economy to expand at 6.3% in FY26, while the International Monetary Fund, in its April update, trimmed its FY26 projection for India's growth to 6.2% from 6.5% citing potential trade risks stemming from the US-led tariff war.
India's finance ministry, meanwhile, has pegged the country's FY26 growth in the range of 6.3% to 6.8%.
ADB expects services and agriculture to be key drivers of India's growth, with the farm sector supported by a forecast of above-normal monsoon rains.
India's services sector output rose to a 10-month high in June, driven by higher sales, new orders, and positive demand trends. The seasonally adjusted HSBC India Services PMI Business Activity Index, compiled by S&P Global, rose to 60.4 in June, up from 58.8 in May, 58.7 in April, and 58.5 in March.
'The central government's fiscal position remains strong, with higher-than-expected dividends from the Reserve Bank of India (RBI), and it is on track to meet the targeted reduction in its fiscal deficit,' ADB said.
As things stand, RBI will transfer a record ₹ 2.69 trillion as dividend to the Central government for FY25, the highest-ever surplus payout by the central bank.
This will be accounted for during FY26.
ADB said India's growth would improve next fiscal year helped by rising investments and backed by recent reductions of the repo rate and the cash reserve ratio if policy uncertainty reduces and financial conditions are favourable.
'The baseline expectations of lower crude oil prices will also support economic activity in FY2025 and FY2026,' it added.
In June, RBI's Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February.
The central bank's rate-setting panel held its ground on the GDP growth forecast for FY26 at 6.5% in its June review, offering a measure of stability amidglobal uncertainties.
RBI had initially projected a 6.7% expansion but lowered it in April, flagging risks from rising trade and policy volatility, including the potential impact of steep US tariffs that could strain Asia's third-largest economy.
ADB also warned that a re-escalation of conflict in West Asia could disrupt shipping and raise oil prices, curbing growth and fuelling inflation, thus further impacting global economic growth.
It also said India's inflation forecast for the ongoing fiscal year had been lowered to 3.8%, reflecting a faster-than-expected decline in food prices due to better agricultural production.