India economy to grow at 6.7% in FY26: ADB

New Delhi: India's gross domestic product (GDP) is likely to expand at 6.7 per cent during the current fiscal year spurred by higher domestic demand, rising rural incomes and moderating inflation, ADB said on Wednesday.

Favourable monetary and fiscal policies are expected to sustain the growth momentum, with GDP projected to increase by 6.8 per cent in FY26 (2026-27), according to the Asian Development Outlook (ADO) April 2025.

Meanwhile, the Reserve Bank of India (RBI) on Wednesday lowered its GDP forecast to 6.5 per cent from 6.7 per cent estimated earlier for the current financial year on account of impact of global trade and policy uncertainties.

India continues to show resilient growth despite global uncertainties, driven by the Government of India's focus on infrastructure development and job creation, said Asian Development Bank (ADB) Country Director for India Mio Oka.

"The further strengthening of the manufacturing sector through regulatory reforms, combined with the already robust services and agriculture sectors and the recently announced tax incentives for the middle class, will help sustain India's strong economic growth trajectory," she said.

India's GDP to expand by 6.7 per cent in 2025-26 (ending 31 March 2026) spurred by higher domestic demand, rising rural incomes, a strong services sector, and moderating inflation that will boost consumer confidence, the report said.

The report underscores that consumption will be a major growth driver, fuelled by rising rural incomes and increased demand from urban middle-class and affluent households, thanks to reductions in personal income tax rates.

Additionally, it said, moderating inflation is expected to further boost consumer sentiment with rates projected at 4.3 per cent in FY26 before declining slightly to 4 per cent in FY27.

The falling inflation would create policy space for more cuts to repo rate even with global financial uncertainty, it said.

The RBI cut policy rate by 25 basis points on Wednesday for a second consecutive tim e bringing repo rate to 6 per cent. In the last two bi-monthly MPC meetings, the effective repo rate reduction has been to the tune of 50 basis points.

The report further said, the services sector will remain a key growth driver, supported by the expansion of business services exports, education, and health services.

The agriculture sector is expected to maintain strong growth in FY25, driven by robust winter crop sowing, particularly wheat and pulses. Meanwhile, the manufacturing sector is anticipated to rebound after experiencing tepid growth in 2024-25, it said.

Investment in urban infrastructure will increase, supported by a new government fund with an initial allocation of Rs 100 billion (USD 1.17 billion).

While global economic uncertainties may hinder private investment prospects in the short term, they are expected to improve with the gradual lowering of borrowing costs and planned regulatory reforms aimed at spurring investment, it said.

The report noted a range of near-term growth risks, including uncertainties created by the recent increase in US tariffs on Indian exports and broader global developments that could lead to higher commodity prices.

However, it said some of these risks are expected to be mitigated by India's relatively stable macroeconomic position.

Issuing a disclaimer, the report said, the growth forecasts were finalised prior to the April 2 announcement of new tariffs by the US administration, so the baseline projections only reflect tariffs that were in place previously.

However, ADO April 2025 does feature an analysis of how higher tariffs may affect growth in Asia and the Pacific.