ADB Cuts India's FY26 Growth Forecast to 6.5% Due to Tariff Impact

The Asian Development Bank (ADB) has lowered its growth forecast for India to 6.5% in FY26, down from 6.7% projected in April 2025. The estimate for FY27 has also been cut to 6.5%, from 6.8% earlier. As per the reports, the agency said the downgrade shows the impact of new US tariffs on Indian exports.

US Tariff Measures

In August 2025, the US imposed a 50% tariff on a broad list of Indian products, including textiles, jewellery, leather goods, and chemicals. A 100% tariff was also placed on patented pharmaceuticals unless companies built production facilities in the US. According to government estimates, the measures could affect up to $48 billion of exports.

Growth in Early FY26

India’s economy expanded 7.8% in the first quarter of FY26, the fastest growth in five quarters. Strong household consumption and government spending contributed to this performance. ADB, however, expects slower growth in the second half of the year as the trade measures take effect.

Domestic Demand and Services

ADB said resilient domestic demand and services exports will cushion part of the impact from weaker goods exports. Agriculture is expected to benefit from a favourable monsoon, while government spending on infrastructure may support construction. Manufacturing is likely to face pressure from trade restrictions and subdued investment.

Inflation and Monetary Policy

Inflation is projected to average 3.1% in FY26, lower than earlier estimates. The Reserve Bank of India has reduced the repo rate to 5.5%, the lowest since August 2022, after several rate cuts in 2025. Lending rates have eased, supporting credit growth.

Fiscal and External Position

The fiscal deficit is expected at around 4.5% of GDP, higher than budgeted but below FY25’s 4.7%. The current account deficit is forecast to widen to 0.9% of GDP in FY26 and 1.1% in FY27.

Read More: EY Upgrades India's FY26 GDP Forecast to 6.7% on GST 2.0 Boost!

Conclusion

India’s economy is projected to grow steadily at 6.5% in FY26, but weaker exports due to US tariffs are expected to weigh on overall momentum in the coming quarters.

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