By Annjali Sharma
WASHINGTON – The Asian Development Bank on Thursday lowered India’s growth forecast for FY26 to 6.5 per cent from earlier 6.7 per cent on account of trade uncertainty and higher US tariffs that are expected to impact exports and investment.
It said that despite the downward revision from the April 2025 Asian Development Outlook, India remains one of the fastest-growing major economies in the world.
As per the July ADO, this revision is primarily due to the impact of US baseline tariffs and associated policy uncertainty.
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.
It said the services and agriculture sectors are expected to be key drivers of growth, the latter supported by a forecast of above-normal monsoon rains.
Economic activity remains robust, with domestic consumption set to grow strongly on the back of the revival of rural demand, it added.
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.
In FY27, growth is projected to improve to 6.7 per cent on account of rising investments, under the assumption of reduced policy uncertainty and favourable financial conditions, backed by recent reductions in the repo rate and the cash reserve ratio by the monetary authorities, the report highlighted.
India Ratings & Research also trimmed India’s growth projection for the current fiscal to 6.3 per cent, citing uncertainties around US tariffs and a weak investment climate.
It expects GDP in FY26 to grow 6.3 per cent y-o-y, 30bp lower than its earlier forecast of 6.6 per cent made in December 2024. The economy is facing both headwinds and tailwinds, it said in its mid-year economic outlook.
Devendra Kumar Pant, Chief Economist and Head of Public Finance, Ind-Ra said “Major headwinds are: i) uncertain global scenario from the unilateral tariff hikes by the US for all countries and ii) weaker-than-expected investment climate. The major tailwinds are i) monetary easing, ii) faster-than-expected inflation decline, and iii) likely above-normal rainfall in 2025”.
The Economic Survey has projected the GDP growth for FY26 between 6.3 per cent and 6.8 per cent, while RBI lowered its growth forecast to 6.5 per cent from an earlier level of 6.7 per cent for the ongoing financial year.
