Winning Bizness Economic Desk

Mumbai The Asian Development Bank (ADB) has revised India’s GDP growth forecast for the fiscal year 2025–26 (FY26) from 6.7% to 6.5%, as per its latest Asian Development Outlook report released on July 23. Despite this downgrade, ADB stated that India will continue to be one of the fastest-growing major economies globally.

The downward revision is attributed to the effects of U.S. tariffs and policy uncertainties, which have impacted exports and investments. However, the ADB remains optimistic, citing strong domestic demand, better monsoon prospects, and the resilience of the services and agriculture sectors as key drivers of economic momentum.

FY27 Growth Estimate Also Slightly Reduced

Retail inflation, which the RBI closely monitors, has eased significantly. The inflation rate for June dropped to 2.1%, far below the central bank’s earlier projection of 3.7% for 2025-26. April-June quarter inflation also came in at 2.7%, below the estimated 2.9%. American brokerage Citi projects retail inflation could touch a record low of 1.1% in July, pushing the yearly average for 2025-26 down to 3.2%—the lowest since the 1990s.

Sectors show signs of stress

The ADB has also revised its growth projection for FY27 from 6.8% to 6.7%. Yet, the report maintains that India’s economic outlook remains strong. Rising rural demand and an expanding services sector are expected to support growth in the coming years.

According to ADB, India’s economic activity is stable and continues to show positive signs. An increase in domestic consumption, driven by improved rural incomes, is likely to further support growth in FY26 and FY27.

Agriculture and Services to Drive Economic Growth

The report highlights that India’s agriculture and service sectors will be major contributors to economic growth in FY26. The monsoon is expected to be 6% better this year, potentially boosting crop production by 4% compared to the previous year. This increase in agricultural output will likely raise rural incomes and encourage consumer spending.

Additionally, low crude oil prices are expected to support economic activity during FY26 and FY27. Government policies, including tax relief measures and increased public investment, are also contributing to the growth trajectory.

RBI Aligns Growth Estimate with ADB

The Reserve Bank of India (RBI) has also reduced its growth forecast for FY26 from 6.7% to 6.5%. In line with this, the central bank has taken monetary easing steps, including a reduction in the repo rate by 50 basis points to 5.5%. This cut is part of a larger 100 basis points reduction that began in February 2025.

Furthermore, the Cash Reserve Ratio (CRR) has been lowered by 100 basis points to 3%, injecting around ₹2.5 lakh crore in liquidity into the banking system. ADB believes that these steps will promote investment, especially if policy clarity improves.

Strong Government Finances to Support Stability

India’s fiscal situation remains sound. The central government is targeting a fiscal deficit of 4.5%, supported by higher-than-expected tax revenues and a large dividend from the RBI. The ADB expects investment activity to pick up in FY27, helping the economy reach the revised growth estimate of 6.7%.

Global Factors Pose Risks but India Remains Resilient

India's export sector could face challenges due to rising global trade tensions and the imposition of U.S. tariffs. Global economic growth is projected to fall to 2.3% in 2025 — the lowest since 2008. Other institutions have also revised India’s growth projections: the World Bank forecasts 6.3% for FY26, while the International Monetary Fund (IMF) estimates 6.2%.

Nevertheless, India remains in a relatively strong position. The Finance Ministry has described the downward revision as minor and expressed confidence that India will continue to be the fastest-growing major economy for the next two years. The country’s limited dependence on weak global demand helps insulate it from external shocks.

Story in a Nutshell: 7 Key Points

• ADB lowered India’s FY26 growth forecast from 6.7% to 6.5%.
• FY27 forecast also trimmed from 6.8% to 6.7%.
• Agriculture and services sectors to be main growth drivers.
• Strong monsoon and low crude oil prices expected to aid economy.
• RBI reduced repo rate and CRR to boost liquidity and growth.
• Fiscal position strengthened by tax revenue and RBI dividend.
• Global trade tensions pose risks, but India’s growth remains resilient.