The Asian Development Bank (ADB) has slightly lowered India’s growth forecast for the fiscal year 2026, primarily due to concerns over US tariffs and ongoing trade uncertainties.
India’s Growth Outlook Adjusted
The Asian Development Bank announced a revision to India’s growth forecast for FY26, bringing it down to 6.5 percent. This is a slight decrease from the 6.7 percent projection made in April 2025.
The primary reasons cited for this adjustment include the impact of US baseline tariffs and the associated policy uncertainty. Factors like lower global growth and the direct effects of additional US tariffs on investment flows also played a role.
Despite Headwinds, Domestic Strength Remains
Even with these external challenges, India’s economic activity remains robust. Domestic consumption is expected to see strong growth, fueled by a revival in rural demand.
Both the services and agriculture sectors are anticipated to be key drivers of this growth. The agriculture sector, in particular, is set to benefit from a forecast of above-normal monsoon rains.
Additionally, the Central government’s financial standing is strong. Higher-than-expected dividends from the Reserve Bank of India have bolstered its fiscal position, keeping it on track to meet its targeted fiscal deficit reduction.
Inflation Forecast Lowered
The ADB also updated its inflation forecast for India for FY26. It now expects inflation to be 3.8 percent, a drop from the 4.3 percent projected in April.
This positive revision is largely due to a faster-than-expected decline in food prices. Improved agricultural output has contributed to this decline.
Looking further ahead, India’s GDP growth forecast for FY27 has also been slightly trimmed, moving to 6.7 percent from the previous projection of 6.8 percent.
The Looming US Tariff Deadline
The ADB’s forecast revision comes as India is engaged in high-stakes trade deal negotiations with the United States. However, it seems unlikely that a final deal will be reached before the August 1 deadline for reciprocal tariffs.
The primary hurdle in these talks remains differences over market access for agriculture. Recent rounds of discussions have concluded without a breakthrough, and a US delegation is expected to visit India in mid-August for further talks, pushing beyond the initial deadline.
US Commerce Secretary Howard Lutnick has reiterated that August 1 is a “hard deadline” for countries to begin paying tariffs. He stated that while discussions can continue, the new tariff rates will come into effect on that date.
Although US President Donald Trump has indicated that a deal with India is close, the country could face tariffs of up to 26 percent if an agreement isn’t reached soon. The deadline for implementing these reciprocal tariffs has shifted multiple times, adding to the uncertainty.
- ADB has lowered India’s FY26 growth forecast to 6.5%, citing US tariffs.
- Despite this, strong domestic consumption and rural demand are expected.
- Agriculture and services sectors are key growth drivers, supported by good monsoon forecasts.
- Inflation forecast for FY26 has also been lowered to 3.8% due to falling food prices.
- India and the US continue trade negotiations, with a potential August 1 tariff deadline looming.
These adjustments highlight the ongoing global economic influences on India, even as its domestic economy shows resilience and a strong fiscal position.
