ADB cuts India’s FY26 growth forecast to 6.5% on U.S. tariff impact

The Asian Development Bank (ADB) has downgraded India’s growth outlook for the current financial year to 6.5% from the 6.7% predicted in April, on account of the impact of the 50% tariffs imposed by the U.S. on imports from India. The outlook for 2026-27 has also been revised downwards to 6.5% from the earlier prediction of 6.8%.

The ADB, in its Asian Development Outlook September 2025, released on Tuesday (September 30, 2025), also reduced its growth forecast for developing Asia to 4.8% for the current year 2025 from its forecast in April of 4.9%. Similarly, the forecast for 2026 has been cut to 4.5% from 4.7%.

“The revisions reflect downgrades for India, hit by steep tariff hikes, and Southeast Asia, driven by a worse and more uncertain global environment,” the report said. India faces the steepest tariff hikes among developing Asian economies, prompting a downgrade in its growth outlook.”

The report further said that, despite strong growth in the first quarter of the current financial year, driven by consumption and public investment, the elevated U.S. tariffs, which it said affected about 60% of goods exported to the U.S., will weigh on growth starting in the second half of 2025-26 and in 2026-27. 

“Merchandise exports are expected to grow only modestly, constrained by US tariffs on key exports, while exports of services are expected to remain robust and a key driver of growth,” it said. “Investment growth is expected to be lower than previously forecast, with corporate investment still subdued by global trade uncertainty.” 

The escalation in tariffs is expected to weigh heavily on key export sectors such as textiles, ready-made garments, jewelry, shrimp, and chemicals, the report noted. 

On the other hand, however, it noted that consumption demand is expected to grow more than previously expected, aided by lower food prices and cuts to consumption and income taxes. 

“The 2025-26 inflation projection for India is revised downward to 3.1%, reflecting subdued global oil prices and a faster-than-expected decline in food prices due to higher agricultural production,” the report said. 

However, it added that food prices are expected to normalise in 2026-27, leading to an upward revision of the inflation forecast to 4.2% for that year.