ADB lowers India's FY26 growth forecast to 6.5%, expects it to retain fastest growing economy tag

ADB

Indian economy is expected to grow a tad slower at 6.5 percent compared with 6.7 percent projected earlier, as policy uncertainty and US tariffs weigh on exports and investments, Asian Development Bank said on July 23.

"The Indian economy is projected to grow 6.5% in FY2025, lower than the 6.7% forecast in the April 2025 ADO but still one of the fastest growing major economies in the world,"  ADB said.

In its latest Outlook, the bank also lowered FY27 prospects, projecting the economy to grow at 6.7 percent. This is lower than the 6.8 percent growth rate estimated in April.

The Manila-based bank highlighted that services and agriculture sector are likely to drive growth in FY26, as the country expects above normal monsoon.

Data released on July 21 showed that crop output in the country was 4 percent higher compared with the previous year, while monsoon was trending 6 percent above normal.

Rice and coarse cereal output are witnessing double digit growth, which is also likely to help inflation outlook for the year.

ADB now expects inflation to settle at 3.8 percent, compared with 4.3 percent in April. In June, India's inflation dipped further to over six year low of 2.1 percent, as food inflation charted negative territory for the first time in six years.

For FY27, ADB expects inflation to settle at RBI mid-point target of 4 percent.

The multilateral institution was also optimistic about government finances.

"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," it pointed out.

RBI's cuts, along with reduced policy uncertainty is expected to help growth pick up in the coming year, it added.