ADB lowers FY27 India growth forecast to 6.5% citing US tariff impact

On risks to the outlook, it noted that the direction of bilateral trade policy between the US and India will pose both upside and downside risks

The Asian Development Bank (ADB) on Tuesday cut India’s growth forecast for next financial year (FY27) by 20 basis points to 6.5 per cent, citing the impact of steep tariff hikes by the United States on exports and manufacturing. It kept its FY26 projection unchanged at 6.5 per cent, in line with its July update.

 

“India faces the steepest tariff hikes among developing Asian economies, prompting a downgrade in its growth outlook. The sharp escalation in tariffs is expected to weigh heavily on key export sectors such as textiles, garments, jewellery, shrimp and chemicals,” ADB said in its September Asian Development Outlook (ADO).

 

The Manila-based lender said weaker exports would weigh on GDP in both FY26 and FY27. “Net exports will subtract from growth more than previously forecast in April,” it added.

 

On risks to the outlook, ADB pointed to bilateral trade policy with the US as a key factor. Growth could benefit if Washington lowers tariffs to levels closer to those imposed on other Asian economies. On the downside, any escalation in trade or geopolitical tensions could hit more sectors and dampen demand by raising global commodity prices.

 

On inflation, ADB now expects consumer prices to average 3.1 per cent in FY26, down from 3.8 per cent projected earlier. For FY27, however, it raised its estimate to 4.2 per cent from 4 per cent, citing food price normalisation.

 

Consumption is expected to pick up, particularly in rural areas, aided by easing food prices and fiscal measures such as cuts in personal income tax, lower GST rates, and a likely salary hike for central government employees under the Eighth Pay Commission.

 

Investment growth, however, is projected to slow due to corporate caution amid global trade policy uncertainty. “After a strong first four months of the fiscal year, central government capital spending in the remaining eight months will likely be muted,” the report said.

 

On the fiscal front, ADB said the deficit could overshoot the Budget estimate of 4.4 per cent of GDP as revenue growth lags assumptions. GST rate cuts, not factored into the Budget, may further weigh on revenues, while expenditure levels are expected to be maintained. Even so, the deficit is projected to remain below the 4.7 per cent recorded in FY25.