Impact of trade war & tariffs: ADB cuts India's FY26 outlook; GDP growth forecast cut to 6.5%
The Asian Development Bank (ADB) on Wednesday lowered its forecast for India's GDP growth for FY26 from 6.7 percent to 6.5 percent, citing uncertainty in global trade and the effect of higher US tariffs on Indian exports and investment flows
'This revision is primarily due to the impact of US baseline tariffs and associated policy uncertainty.
In addition to the effects of lower global growth and the direct impact of additional US tariffs on Indian exports, heightened policy uncertainty may affect investment flows,' the ADB said in its July edition of the Asian Development Outlook (ADO), as quoted by news agency PTI.
India is still one of the major economies with the fastest rates of growth in the world, even with the downward revision. Economic activity is still robust, according to the ADO, and domestic consumption is predicted to increase significantly due to a recovery in rural demand.
In the next fiscal year, the agriculture and services sectors are probably going to be the main engines of growth. The agricultural sector, in particular, is expected to benefit from a forecast of above-normal monsoon rains, according to the news agency.
The government's economic survey had earlier projected FY26 growth in the range of 6.3 percent to 6.8 percent. The Reserve Bank of India (RBI), too, recently lowered its own growth forecast for the current financial year from 6.7 percent to 6.5 percent.
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India's economy grew by 6.5 percent in FY25, the slowest expansion in four years, down sharply from 9.2 percent in FY24.
The ADB said the centre's fiscal position remains robust, bolstered by higher-than-expected dividend payouts from the RBI. Additionally, it looks like the government will reach its goal of reducing the fiscal deficit.
Assuming a more stable policy environment and favorable financial conditions, the report forecasts that growth could recover to 6.7 percent in FY27.
Anticipated increases in investment, supported by recent cuts to key policy rates, serve as the foundation for this forecast, reported PTI.
Since there are indications that inflation is going to continue to decline, the RBI has decided to adopt a neutral monetary stance, which allows it to change policy rates as needed. Since February of this year, the benchmark repo rate has been lowered by 100 basis points by the monetary policy committee (MPC).
In its most recent move last month, the RBI delivered a surprise 50 basis point rate cut, its third consecutive reduction, and slashed the cash reserve ratio (CRR) by a full percentage point to 3 percent. The CRR move alone injected around ₹2.5 lakh crore into the banking system, further supporting liquidity as reported by PTI.
Additionally, the ADB said the outlook for FY26 and FY27 is supported by baseline expectations of lower crude oil prices, which should help sustain economic momentum.
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