Amid global uncertainties from US tariffs, weak investment climate, two agencies cut India’s GDP growth forecast for FY26


Global uncertainties due to the US tariff hikes have raised concerns over domestic growth slowing down this fiscal. On Wednesday, two agencies scaled down their growth forecasts for India for FY26.

The Asian Development Bank (ADB) lowered India’s growth forecast for FY26 to 6.5% from 6.7% due to trade uncertainty and higher US tariffs that are expected to impact exports and investment.

However, India remains one of the fastest-growing major economies in the world, the Asian Development Outlook (ADO) said. “This revision is primarily due to the impact of US baseline tariffs and associated policy uncertainty. In addition to the effects of lower global growth and the direct impact of additional US tariffs on Indian exports, heightened policy uncertainty may affect investment flows,” the July ADO said.

Meanwhile, in its mid-year economic outlook, India Ratings and Research has said it expects GDP growth to slow down amid global uncertainties and a weaker-than-expected investment climate. The agency has scaled down its GDP growth forecast in FY26 to 6.3%, which is 30 basis points lower than its earlier forecast of 6.6% in December 2024.  

“Major headwinds are uncertain global scenario from the unilateral tariff hikes by the US for all countries and weaker-than-expected investment climate. The major tailwinds are monetary easing, faster-than-expected inflation decline, and likely above-normal rainfall in 2025,” said Devendra Kumar Pant, Chief Economist and Head Public Finance, India Ratings.

The agency expects private final consumption expenditure (PFCE) to grow 6.9% YoY in FY26 on the back of a decline in retail inflation, leading to positive real wage growth for most categories of wage earners. However, it expects investment demand, that is gross fixed capital formation (GFCF), to grow 6.7% in FY26, slower than the forecasted 7.2%. It attributed this to a higher-than-expected investment growth in FY25 of 7.1%, weakness in manufacturing, and sluggish global demand.

The Economic Survey has projected the GDP growth for FY26 between 6.3% and 6.8%. The Reserve Bank of India has also scaled down its growth forecast for the fiscal to 6.5% from the earlier 6.7%.

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