India’s economic growth prospects have been revised downward, with the Asian Development Bank (ADB) cutting its forecast for FY26 to 6.5 percent from an earlier estimate of 7 percent. The adjustment reflects concerns over the impact of US tariffs on Indian exports, which are expected to slow external trade momentum. Despite this, robust domestic demand and resilient service exports are projected to provide some balance against external pressures.

ADB Revises Growth Forecast

The ADB’s latest outlook highlights a softer trajectory for India’s economy in FY26 compared to its previous projection. The reduction to 6.5 percent growth underscores the challenges posed by global trade tensions, particularly the imposition of tariffs by the United States that could dampen India’s export performance.

Exports Under Pressure from Tariffs

Exports remain a critical driver of India’s economic expansion, but higher tariffs imposed by the US are expected to create headwinds in key sectors. This development may reduce competitiveness for Indian goods in international markets, thereby slowing overall trade growth. While service exports continue to perform strongly, goods exports face a more uncertain path ahead due to these policy shifts.

Domestic Demand Provides Cushion

Even as external conditions weigh on growth, India’s domestic economy remains a source of resilience. Strong consumer spending and investment activity are anticipated to help offset some of the losses from weaker export revenues. The services sector, particularly information technology and professional services, is also expected to play a stabilizing role in maintaining economic momentum during this period of adjustment.

Fiscal and Current Account Deficits Widening

The ADB report also points to widening fiscal and current account deficits as potential risks for India’s macroeconomic stability in FY26. Rising deficits could limit fiscal space for public investment while increasing reliance on external financing sources. Policymakers may need to carefully balance spending priorities with measures aimed at maintaining financial discipline in order to safeguard long-term stability.

Inflation Trends Show Mixed Outlook

Inflationary pressures are expected to ease in FY26 compared with previous years, providing some relief for households and businesses alike. However, projections indicate that inflation could rise again in FY27, suggesting that price stability will remain an area requiring close monitoring by monetary authorities going forward. This mixed outlook reflects both domestic supply factors and global commodity price movements that continue to influence inflation dynamics in India.

India’s revised growth outlook underscores the delicate balance between strong internal demand and external vulnerabilities tied to global trade policies. While the economy is projected to remain one of the fastest-growing among major nations, challenges such as widening deficits and tariff-related export pressures highlight the importance of strategic policy responses in sustaining long-term growth momentum.