ADB Cuts India’s FY26 Growth Forecast to 6.5%

The Asian Development Bank (ADB) has reduced India’s growth forecast for FY26 to 6.5%, down from its earlier estimate of 6.7%. The downgrade, detailed in the September 2025 edition of the Asian Development Outlook, comes in the wake of elevated U.S. tariffs that are expected to significantly impact India’s export sector.

What Led to the Downgrade?

• The report cited that about 60% of Indian exports to the U.S. are now affected by the 50% tariff hike, making India one of the most heavily impacted Asian economies.
• While the country showed strong growth in Q1 of FY26, driven by domestic consumption and public investment, ADB predicts a slowdown in the second half of the fiscal year and into 2026–27.
• ADB also revised India’s FY27 forecast down to 6.5% from an earlier 6.8%, indicating prolonged effects from the trade tensions.

Key Impact Areas

The sectors most affected by the tariff escalation include,

• Textiles and ready-made garments
• Gems and jewellery
• Shrimp and seafood exports
• Chemical products

While merchandise exports are expected to see only modest growth, services exports are projected to remain robust and act as a key driver for the economy.

Investment and Inflation Outlook

ADB noted that investment growth will be lower than earlier expected, citing continued uncertainty in global trade that’s dampening corporate investment appetite.

However, the domestic outlook presents some silver linings,

• Private consumption is expected to rise more than initially forecast, supported by reduced food prices and cuts in consumption and income taxes
• The FY26 inflation forecast has been revised down to 3.1%, due to subdued global oil prices and improved agricultural output
• Inflation is expected to rise to 4.2% in FY27 as food prices normalize

Quick facts

• India’s FY26 GDP forecast: 6.5% (revised down from 6.7%)
• Tariff impact: 60% of India’s U.S. exports affected
• Export sectors hit: textiles, garments, jewellery, shrimp, chemicals
• Inflation forecast FY26: 3.1%, FY27: 4.2%
• Reason: Elevated U.S. tariffs, weaker global trade outlook