ADB Raises India’s FY26 GDP Forecast to 7.2 pc
GDP grew faster-than-expected 8.2 per cent in the second quarter of FY26
Chennai: The Asian Development Bank has raised India’s GDP forecast for FY26 to 7.2 per cent due to a better-than-expected Q2 growth. India’s growth has improved the 2025 outlook of South Asia as well as developing Asia and the Pacific.
As per ADB’s December forecast, India’s GDP growth in FY26 is projected to be 7.2 per cent against 6.5 per cent estimated in the September outlook- up 0.6 percentage points.
GDP grew faster-than-expected 8.2 per cent in the second quarter of FY26, leading to an average growth of 8 per cent in the first half of the fiscal year. The strong growth is attributable to robust expansion of the manufacturing and services sectors on the supply side and consumption and investment on the demand side. Exports remained resilient due to frontloading ahead of elevated US tariffs and diversification to non-US markets.
Growth is expected to moderate in the second half, as the central government’s capital spending eases amid fiscal consolidation efforts, and export growth softens, driven by elevated US tariffs impacting select Indian exports. However, stronger-than-expected consumption demand, helped by a robust rural economy, the impact of GST rate cuts, and steady credit growth, will support growth. On the supply side, domestic industrial demand will be tempered by muted goods exports and strong imports.
The services sector, which has grown by 9.3 per cent in first half of FY26, will continue to grow strongly, helped by robust domestic and external demand.
However, the growth forecast for FY27 has been retained at 6.5 per cent. A strong growth outcome in the first half of FY26 will result in an unfavourable base effect for the corresponding period in FY27. However, this is likely to be offset by an array of recent measures incentivizing growth, such as enhanced labour market flexibility through a revamp of the labour laws, simplification of GST, relaxation of import restrictions for selected products, and credit relief and support to exporters affected by US tariffs.
Risks remain balanced, with downside risks coming from potential escalation of trade tensions and weather‑related shocks, while upside potential could emerge if trade negotiations with the US yield a lower tariff rate for India.
Due to India’s improved outlook, the 2025 growth forecast for economies in developing Asia and the Pacific has been raised by 0.3 percentage points and growth in South Asia up by 0.6 percentage points. “The upgrade is due to stronger-than-expected growth in India, driven by robust domestic consumption, and solid export performance in the region’s high-income technology-exporting economies,” ADB said.