ADB lowers India’s FY26 growth forecast to 6.5% as tariffs bite

ADB struck a bullish note on consumption, pointing to stronger rural demand and higher household spending after GST cuts

India’s economy will likely grow slower than earlier anticipated, with the Asian Development Bank (ADB) trimming its FY26 forecast to 6.5 percent from 6.7 percent projected in April. The Manila-based lender cited steep tariff hikes and global uncertainty as the main headwinds.

“India faces the steepest tariff hikes among developing Asian economies, prompting a downgrade in its growth outlook. For FY2025, growth is now projected at 6.5%, down from 6.7% in April,” ADB said in its September Outlook released on September 30.

The outlook for FY27 was also revised downwards, to 6.5 percent from 6.8 percent, with tariffs and tighter global conditions expected to weigh more heavily in the medium term.

The downgrade comes despite India’s surprise 7.8 percent GDP growth in Q1FY26, its fastest in five quarters. ADB expects consumption strength and GST rationalisation to support growth in the near term but warned that “additional US tariffs on Indian exports will reduce growth, particularly in the second half of FY26 and in FY27.”

There was better news on inflation. ADB expects consumer prices to average 3.1 percent in FY26, sharply lower than the 4.2 percent projected earlier, though it lifted its FY27 estimate to 4.2 percent on expectations of food price normalisation.

ADB struck a bullish note on consumption, pointing to stronger rural demand and higher household spending after GST cuts. But it warned that investment will likely remain muted, constrained by fiscal space and policy uncertainty.

“Tax revenue growth may be lower than expected partly because GST cuts were not included in the original budget while spending levels are assumed to be maintained, pushing up the deficit. Nevertheless, the deficit will likely be lower than the 4.7% of GDP recorded in FY2025,” it noted.

ADB also cut its developing Asia forecast to 4.5 percent from 4.8 percent, citing the drag of tariffs and weak external demand on Southeast Asia.