ADB sharply revises upward India's GDP growth forecast to 7.2% for FY26

The Asian Development Bank (ADB) on Wednesday upped India's growth forecast for FY26 to 7.2 per cent from 6.5 per cent driven primarily by robust domestic consumption supported by recent tax cuts.

The sharp upgrade of 0.7 percentage points of the Indian economy will help Asia to grow at a faster pace of 5.1 per cent as compared to earlier projection of 4.8 per cent for 2025.

India's 2025 growth projection is raised to 7.2 per cent, reflecting stronger second-quarter expansion as tax cuts supported consumption, ADB's Asian Development Outlook, December 2025 said.

During the second quarter ended September, India logged a six-quarter high GDP growth of 8.2 per cent as compared to 7.8 per cent recorded in the first quarter. As a result, India has achieved 8 per cent growth rate in the first half of the current financial year.

The strong growth is attributable to robust expansion of the manufacturing and services sectors on the supply side and consumption and investment on the demand side, it said.

The report from Manila-based multilateral development bank, however, retained FY27 forecast at 6.5 per cent.

"Following stronger-than-anticipated growth in Q3, India's 2025 growth projection is upgraded by 0.7 percentage points to 7.2 per cent, driven primarily by robust domestic consumption supported by recent tax cuts," it said.

Earlier this month, the Reserve Bank raised the GDP growth projection to 7.3 per cent for the current fiscal from its earlier estimate of 6.8 per cent following robust economic performance in the July-September quarter.

However, RBI expects moderation in the next half as it has pegged real GDP growth at 7.3 per cent, with Q3 at 7 per cent; and Q4 at 6.5 per cent.

Growth is expected to moderate in the second half as the central government's capital spending eases amid fiscal consolidation, and export growth softens due to elevated US tariffs impacting select Indian exports, it said.

However, it said, stronger than-expected consumption demand, helped by a robust rural economy, the impact of GST rate cuts, and steady credit growth will support growth.

On the supply side, domestic industrial demand will be tempered by muted goods exports and strong imports. The services sector, which has grown by 9.3 per cent in the first half of FY2026, will continue to grow strongly, helped by robust domestic and external demand, it said.

A strong growth outcome in the first half of FY2026 will result in an unfavorable base effect for the corresponding period in FY2027.

However, it said, this is likely to be offset by an array of recent measures incentivizing growth, such as enhanced labour market flexibility through a revamp of the labour laws, simplification of GST, relaxation of import restrictions for selected products, and credit relief and support to exporters affected by US tariffs.

"Risks remain balanced, with downside risks coming from potential escalation of trade tensions and weather-related shocks, while upside potential could emerge if trade negotiations with the US yield a lower tariff rate for India," it said.

With regard to inflation, the report said, it is projected to ease in FY2026, with the forecast revised down to 2.6 per cent , from 3.1 per cent in September.

The moderation of inflation reflects lower-than-expected food prices due to favorable monsoon conditions and strong monsoon crop output, alongside GST rate cuts in select sectors, it said.

Headline inflation has eased sharply in recent months, supported by deflation in vegetables and pulses, it said, adding that, inflation is expected to stay subdued through FY2026 but rise in early FY2027 as base effects reverse, with the forecast for FY2026 maintained at 4.2 per cent.