CHENNAI: The Asian Development Bank (ADB), in its latest report, Asian Development Outlook, released on Wednesday (July 23), has revised India’s GDP growth forecast for FY26 down to 6.5%, from an earlier estimate of 6.7%. The downgrade is attributed primarily to the adverse effects of recent tariff policies implemented by the US, which have disrupted global trade dynamics and dampened export prospects for developing economies, including India.
Despite the downward revision, ADB maintained that India will remain one of the fastest-growing major economies globally, underpinned by strong domestic demand, favourable monsoon conditions, and a resilient services sector.
ADB pointed to the increasing impact of US trade protectionism, including new tariffs and associated policy uncertainty, which have affected investor sentiment and exports from the region. These developments are expected to weigh on India’s trade outlook and may delay some foreign investment flows.
In addition to the global trade tensions, other external factors such as geopolitical risks and supply chain disruptions continue to pose downside risks to India’s economic growth.
Domestic outlook
Even with the revised projection, India’s growth remains robust by global standards. ADB expects continued support from rural consumption, thanks to favourable monsoon patterns and improving rural incomes. Services and agriculture are also expected to perform well, helping to balance out weaker export performance.
The report also notes that domestic macroeconomic conditions are expected to remain supportive, with potential monetary policy easing and infrastructure-driven public spending likely to cushion external shocks.
Inflation for FY26 is projected at 3.8%, slightly lower than previous estimates, due to expected moderation in food prices supported by healthy agricultural output.
Looking ahead, ADB expects India’s growth to rebound slightly to 6.7% in FY27, assuming global conditions stabilise and investment sentiment improves.
Global context
ADB has also cut its growth forecast for developing Asia, projecting regional growth at 4.7% in 2025 and 4.6% in 2026—down from previous forecasts of 4.9% and 4.7% respectively. The downgrade reflects the broader impact of US tariffs, China’s slowdown, and global supply chain challenges.
Within South Asia, however, India remains the primary engine of growth. The region is expected to grow at 6.0% in 2025 and 6.2% in 2026.