ADB Raises India's GDP Growth Forecast To 7% On Stronger-Than-Expected Q1 Growth

The Asian Development Bank (ADB) on Wednesday raised its forecast for India's economic growth in the current fiscal to 7%, up from 6.6% projected in July, citing stronger-than-expected economic performance in the first quarter despite supply-side disruptions caused by West Asia crisis.

In its Asian Development Outlook (ADO) September 2026, the multilateral lender said, "The revision reflects India's stronger-than-expected economic performance, with GDP expanding by 7.8% year-on-year in the first quarter of FY2026 (2026-27), supported by robust investment demand, resilient consumption, and solid growth in manufacturing and service sectors."

The economy has also benefited from lower-than-expected supply disruptions, sustained capital inflows, and limited pass-through of higher input cost to consumer prices, which helped cushion the impact of the conflict in the Middle East, the report said.

The ADB's latest projection marks an upward revision of 0.4 percentage points from its July forecast of 6.6% for FY2027.

Despite supply disruptions and high commodity prices, India's economy continues to demonstrate resilience, supported by strong infrastructure spending and growth-supporting fiscal and monetary policies, said ADB Country Director for India Mio Oka.

"Continued strength in the services sector, including AI-related investments, alongside improvements in agricultural productivity and steady manufacturing growth, will help sustain the growth momentum," she said.

ADB now projects FY28 growth at 7.1%, slightly lower than its earlier forecast of 7.3%, largely reflecting a stronger GDP base.

Beyond the temporary impact of higher fuel prices and inflation, domestic demand is expected to remain the main engine of growth in both FY27 and FY28, supported by robust tax collections, low interest rates, rising household incomes, and the anticipated revision of government salaries and pensions in the next financial year, it said.

With regard to inflation, the report said, though it has steadily risen recently, the forecast for FY27 has been lowered from 5.2% to 5%, as the rise has been more gradual and previously anticipated.

Inflation is expected to decline to 4% in FY28, same as forecast in July, as energy prices are anticipated to moderate and agricultural supply recover under a normal monsoon assumption, it said.

While inflation is expected to remain within the Reserve Bank of India's target range, the central bank may consider raising the repo rate if inflationary pressures intensify.

Strong public spending remains a key growth driver, with central government capital expenditure rising 29.9% in the first quarter of the current financial year and on track to meet its 11.5% annual target, it said.

The report emphasised that the private investment is expected to pick up, supported by government measures to enhance the investment climate, including improvements in logistics infrastructure, regulatory reforms, and a strong pipeline of projects.

Despite higher fertiliser subsidy spending and fuel tax cuts, it said, the fiscal deficit is expected to stay around 4.3% of GDP, supported by robust direct tax revenues and additional receipts from oil export taxes and precious metals duties.

The current account deficit is projected to expand in FY27 due to higher commodity prices before narrowing in FY28, aided by lower oil prices and strong export growth. Foreign exchange reserves rose to $740.8 billion, helped by RBI's measures to attract foreign capital, it said.

The report noted key risks to future growth on account of prolonged geopolitical uncertainty, and weather disruptions linked to El Nino, a climate phenomenon that can increase temperatures and decrease rainfall.

These risks may lower agricultural output and raise industrial input costs.

However, it said, services and construction are likely to remain robust in the current financial year and the next year.

ADB, headquartered at Manila, is a leading multilateral development bank supporting sustainable, inclusive, and resilient growth across Asia and the Pacific.