ADB Raises India’s GDP Growth Forecast to 7% for FY2026-27

The Asian Development Bank (ADB) increased its forecast of economic growth for India to 7% for FY2026-27 from the 6.6% forecasted in July 2026. The increase was due to better than expected economic performance during the first quarter of FY2026-27 where GDP grew by 7.8% on an annual basis. According to ADB, growth was driven by solid demand for investments, robust consumption and manufacturing and services output, even with disruptions in supplies and elevated prices of commodities amid the West Asia crisis.

Key Reasons for the Increased Forecast

According to the September 2026 Asian Development Outlook (ADO), the revision in the forecasts was based on strong economic activity within India. Demand for investments and consumption remained resilient while the manufacturing and services sectors were expanding.

Also the supply disruptions were lower than anticipated earlier. This was supported by continued capital inflows and the non-transmission of cost increases to consumer prices. Solid public infrastructure investment and accommodative fiscal and monetary policy settings are expected to keep economic momentum alive.

The GDP Growth data from ADB’s database confirm that the September 2026 ADO gives revised forecasts for 2026 and 2027.

India GDP Growth Forecast Key Points

Particulars	ADB Forecast
Growth rate for FY2026-27	7.0%
July 2026 growth forecast	6.6%
Positive revision	0.4 percentage points
GDP growth rate in Q1 FY2026-27	7.8%
Growth rate for FY2027-28	7.1%
Growth rate for FY2027-28 before revision	7.3%

As a result, ADB has made a positive revision of 0.4 percentage points for the FY2026-27 forecast but reduced its forecast for FY2027-28 from 7.3% to 7.1%. This is because the FY2026-27 growth is projected to create a high base.

Factors Expected to Drive Growth

It is anticipated that domestic demand and public investment will drive growth in India during FY2026-27 and FY2027-28. Factors such as strong tax collection, low interest rates, rising incomes and expected salary and pension revisions are contributing to domestic demand growth.

Public investment is another key driver of growth. As per the September outlook, capital expenditure by the central government increased by 29.9% in the first quarter of the current financial year and is on course to meet its annual target of 11.5%.

Another factor expected to drive private investments is improving logistics infrastructure, regulatory improvements, and pipeline of projects.

Forecast of Inflation Reduced to 5% for FY2026-27

ADB has reduced the inflation forecast of India for FY2026-27 from 5.2% to 5%. ADB explained the rise in inflation as being a gradual process rather than a sudden one.

For FY2027-28, the inflation level is forecasted to be 4%, the same as in the July forecast. The report suggested that moderating energy prices and better agriculture supply would keep prices in check under the assumption of a normal monsoon.

Further, the report stated that RBI may raise the repo rate in case of an increased pressure on inflation.

ADB’s September 2026 data release further showed that the latest inflation database of ADB has the forecasts for 2026 and 2027.

India’s Fiscal Deficit and Forex Reserves

According to ADB, even with an increased spending on fertiliser subsidies and reduced fuel duty rates, India’s fiscal deficit will stay at approximately 4.3% of GDP. Direct taxes coupled with export oil taxes and precious metals duties are likely to aid the budget.

Foreign exchange reserves of India were also touched upon in the report and the figure stood at USD 740.8 billion. The ADB gave the credit for the rise in forex reserves to the steps taken by the RBI to encourage foreign investment.

The current account deficit is expected to expand during FY2026-27 owing to high prices of commodities but then reduce in FY2027-28 as oil prices decline.

Risks for India’s Future Growth Prospects

The ADB has indicated prolonged geopolitical uncertainties and weather disruptions linked to the occurrence of El Niño as key risks.

The impact of El Niño could influence rainfall and temperatures, leading to lower agriculture production and higher costs of production inputs. Higher commodity and energy prices may also lead to inflation.

On the other hand, ADB projects strength in the services and construction sectors in FY2026-27 and FY2027-28.