ADB Raises India's FY26 Growth Forecast Sharply To 7.2% On Consumption Boost

The Asian Development Bank has made a sharp revision in India's fiscal year 2026 GDP forecast, as it sees the growth coming in at 7.2%, according to ADB's Asian Development Outlook released on Wednesday.

This marks an increase of 700 basis points as compared to ADB's earlier projection of 6.5% growth in the country's gross domestic product.

The jump, it suggested, is driven by India's consumption boost, which has given an impetus to the domestic economy. The jump in consumption has been powered by the government's decision to slash the income tax and goods and services tax rates.

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

During the second quarter ended September, India logged a six-quarter high GDP growth of 8.2% as compared to 7.8% recorded in the first quarter. As a result, India has achieved 8% 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%.

"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% for the current fiscal from its earlier estimate of 6.8% 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%, with Q3 at 7%; and Q4 at 6.5%.

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% 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% , from 3.1% 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%.

(With PTI inputs)