New Delhi: The Asian Development Bank (ADB) on Tuesday projected India’s economic growth at 6.5 per cent for FY26, down from its earlier forecast of 7 per cent, citing the impact of US tariffs on Indian exports as a key concern for the second half of the fiscal year. Despite a strong 7.8 per cent GDP growth in Q1, supported by robust consumption and government spending, the additional tariffs are expected to weigh on exports, reducing growth prospects in FY26 and FY27.
The ADB’s September 2025 Asian Development Outlook (ADO) noted that resilient domestic demand and robust services exports would cushion the impact of tariffs. While net exports are now expected to subtract more from growth than previously forecast, the effect on overall GDP will be limited due to the relatively low share of exports in India’s GDP, increasing trade with other countries, and continued strong performance in the services sector.
Fiscal developments are also under scrutiny. The ADB expects the fiscal deficit to exceed the budgeted 4.4 per cent of GDP due to slower tax revenue growth, partly driven by recent GST cuts, though it would remain below the FY25 level of 4.7 per cent. The current account deficit is projected to widen moderately to 0.9 per cent in FY26 and 1.1 per cent in FY27.
On inflation, consumer prices eased to 2.4 per cent year-on-year in the first four months of FY26, prompting the Reserve Bank of India to cut policy rates. ADB has revised the FY26 inflation forecast to 3.1 per cent, with core inflation expected to stay close to 4 per cent.
The report also highlighted strong central government spending in the first four months of FY26, with capital expenditure up 32.8 per cent and current expenditure rising 17.1 per cent, while subsidies showed mixed trends. Bank lending rates and government securities yields have declined following the RBI’s rate cuts and cash reserve ratio adjustments, and foreign direct investment inflows remain muted amid global trade uncertainties.
