ADB Outlook
ADB cuts India FY26 GDP growth forecast by 20 bps to 6.5% on US tariff worry
This story was originally published at 14:40 IST on 23 July 2025
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NEW DELHI - Asian Development Bank has lowered its forecast for India's GDP growth for the financial year started April by 20 basis points to 6.5%, citing impact of US tariff uncertainty. The development bank, as part of its Asian Development Outlook report, also lowered India's GDP growth forecast for 2026-27 (Apr-Mar) by 10 bps to 6.7%. "This revision is primarily due to the impact of US baseline tariffs and associated policy uncertainty," ADB said.
"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 report said. This is the second time this financial year that the multilateral development bank has cut India's growth forecast for FY26.
India is currently in discussion with the US government for a trade deal with preferential tariff treatment, compared with other trading partners, to escape US' country-wise reciprocal tariffs that kick in on Aug. 1. US President Donald Trump, who has been sending individual letters to nations since last week, informing them about the reciprocal tariffs due to hit them, has not yet announced any duty for India.
On Apr. 2, Trump had announced a 26% reciprocal tariff on Indian goods but it is not clear whether he will stick to the same level if he does issue a tariff letter to New Delhi. The tariffs mentioned in the latest letters sent to some countries so far are different from what was unveiled for them in April.
According to the report, despite the exogenous risks, economic activity remains robust, with domestic consumption set to grow strongly on the back of revival of rural demand in FY26. In the post COVID-19 era, India's GDP growth has been broadly led by government spending as consumption and rural demand slumped, although in FY25, both saw a steady growth. In FY25, however, India's GDP grew at a four-year low rate of 6.5%. The government has projected GDP growth to be around 6.3-6.8% in FY26.
Services and agriculture sectors are expected to be key drivers of growth in FY26, the latter supported by a forecast of above-normal monsoon rains, ADB said. "Additionally, the central government's fiscal position remains strong, with higher-than-expected dividends from the Reserve Bank of India, and it is on track to meet the targeted reduction in its fiscal deficit."
According to ADB, India's projected GDP growth of 6.7% in FY27 is on account of rising investments under the assumption of reduced policy uncertainty and favourable financial conditions backed by the recent reductions of the repo rate and the cash reserve ratio by the monetary authorities.
The RBI's Monetary Policy Committee lowered the repo rate by a bigger-than-expected 50 bps earlier in June as the committee saw a need to support economic growth in the face of global uncertainties. Drawing comfort from declining inflation, the rate-setting panel "frontloaded" monetary policy easing. As per ADB, the baseline expectations of lower crude oil prices will also support economic activity in FY26 and FY27.
In line with benign crude price outlook, ADB lowered India's inflation outlook for FY26 by 50 bps to 3.8% and kept the projection for FY27 unchanged at 4%. The 50 bps reduction in inflation forecast for FY26 reflects faster-than-expected decline in food prices due to better agricultural production, ADB said.
India's retail inflation has declined for eight consecutive months now and stayed below the RBI's medium-term target of 4.0% for five months in a row. ADB's inflation projection for India is 10 bps higher than the central bank's view for FY26 but 50 bps lower than RBI's view for FY27. End
Reported by Priyasmita Dutta
Edited by Vandana Hingorani
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