ADB Cuts India's FY27 Growth Forecast; Here's What's Dragging the Economy

The Asian Development Bank (ADB) has lowered India's GDP growth forecast for FY27 to 6.6%, down from the 6.9% projected in April, citing elevated energy prices that are eroding household purchasing power and weighing on domestic demand.

In its July Asian Development Outlook, the multilateral lender retained its FY28 growth forecast at 7.3%, saying India's medium-term outlook remains supported by stronger exports, public investment and structural policy reforms despite near-term headwinds.

Why Did ADB Lower Its Growth Forecast?

According to the ADB, persistently high energy prices are squeezing real household incomes, reducing consumer spending and dampening private demand.

The lender also noted that higher oil and transportation costs have weakened consumer sentiment, prompting it to revise its outlook not only for India but also for the wider South Asian region.

As a result, the ADB lowered South Asia's 2026 growth projection by 0.3 percentage points, with India accounting for most of the downgrade.

What Will Support India's Growth?

Despite trimming its forecast, the ADB expects India's economy to remain among the region's strongest performers.

The report said growth will be supported by continued public capital expenditure, policy measures to attract foreign investment, targeted credit support, fuel tax reductions, strong services exports and improved export competitiveness through trade agreements

The lender believes these factors will help offset some of the pressure from higher energy costs and a challenging global environment.

Inflation Outlook Turns Less Favourable

The ADB also revised India's inflation outlook upward. It now expects FY27 inflation to average 5.2%, compared with the 4.5% projected in April.

The revision reflects rising global oil prices, rupee weakness and the risk of higher food inflation.

According to the report, heatwaves could disrupt agricultural output, while the fading of favourable base effects is likely to add further pressure to food prices.

However, the lender retained its FY28 inflation forecast at 4%, expecting food and fuel prices to moderate as supply conditions improve and favourable statistical base effects return.

Risks Remain Tilted to the Downside

ADB warned that the balance of risks continues to lean negative.

The report identified geopolitical tensions and weather-related disruptions as the biggest threats to India's growth outlook.

A prolonged rise in crude oil prices or weaker agricultural production could further slow consumption and push inflation higher.

Global Uncertainty Continues to Cloud Outlook

The downgrade comes against a backdrop of growing uncertainty in the global economy.

Rising geopolitical tensions in the Middle East, particularly the ongoing conflict involving Iran, continue to threaten global energy supplies and keep oil prices elevated.

The Strait of Hormuz, through which a significant share of global crude oil shipments pass, remains a key source of risk for energy-importing economies such as India.

At the same time, slowing global trade and persistent inflationary pressures are weighing on the broader economic outlook.

India Still Among the Fastest-Growing Major Economies

Despite the near-term challenges, India's growth prospects remain relatively resilient compared with most large economies.

The International Monetary Fund (IMF) recently projected India's economy to grow 6.4% in FY27, before accelerating to 6.7% in FY28, making it one of the fastest-growing major economies globally.

While both the IMF and ADB acknowledge mounting global risks, they continue to expect India to outperform many of its peers, supported by strong domestic demand, public investment, services exports and ongoing structural reforms.