ADB Cuts India’s FY26 Growth Forecast to 6.5% Amid U.S. Tariff Pressures

The Asian Development Bank (ADB) has lowered India’s economic growth forecast for the current financial year to 6.5% from the 6.7% projected in April, citing the impact of elevated U.S. tariffs on imports from India. The outlook for 2026-27 has also been revised downward to 6.5% from an earlier estimate of 6.8%. The update was part of the ADB’s Asian Development Outlook September 2025, released on Tuesday, September 30.

India’s Growth Outlook Cut to 6.5%

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For developing Asia as a whole, the ADB has trimmed its growth projection for 2025 to 4.8% from April’s 4.9% forecast, while the forecast for 2026 has been cut to 4.5% from 4.7%. The report highlighted that the revisions reflect weaker prospects for India, which faces the steepest tariff hikes among developing Asian economies, and for Southeast Asia amid an uncertain global economic environment.

U.S. Tariffs and Export Challenges Impact Growth

Despite robust growth in India during the first quarter of 2025-26, driven by consumption and public investment, the ADB noted that the elevated U.S. tariffs—impacting around 60% of goods exported to the United States—are likely to weigh on economic performance from the second half of the current fiscal year and into 2026-27. Merchandise exports are expected to expand only modestly, constrained by tariffs on key sectors, while services exports are likely to remain strong and continue contributing to growth.

The report identified key export sectors likely to be affected, including textiles, ready-made garments, jewellery, shrimp, and chemicals. Investment growth is also expected to be lower than previously forecast, with corporate investment subdued due to global trade uncertainties.

Domestic Consumption and Inflation Trends

On the domestic front, however, consumer demand is projected to grow faster than expected, supported by lower food prices and reductions in consumption and income taxes. Reflecting these trends, the ADB revised India’s inflation projection for 2025-26 downward to 3.1%, citing subdued global oil prices and a faster-than-anticipated decline in food costs thanks to higher agricultural production. Inflation is expected to rise in 2026-27 to 4.2% as food prices normalise.

Conclusion

The ADB’s revised outlook underscores the dual impact of external and domestic factors on India’s economy. While U.S. tariffs are expected to dampen export-led growth, strong domestic consumption and services exports are likely to provide support in the coming years.