ADB raises India FY27 growth forecast to 7% from 6.6% despite West Asia crisis

The Asian Development Bank (ADB) on Wednesday raised its forecast for India’s economic growth in the current financial year to 7% from 6.6%, citing stronger-than-expected economic performance in the first quarter despite supply-side disruptions caused by the West Asia war.

In its September 2026 edition of the Asian Development Outlook (ADO), the multilateral lender said India’s GDP expanded 7.8% year-on-year in the first quarter of FY27, supported by robust investment demand, resilient consumption, and solid growth in manufacturing and services. The latest projection marks an upward revision of 0.4 percentage points from ADB’s July forecast of 6.6% for FY27.

Robust domestic demand to support growth

ADB said the economy had also benefited from lower-than-expected supply disruptions, sustained capital inflows, and limited pass-through of higher input costs to consumer prices, cushioning the impact of the conflict in the Middle East.

“Despite supply disruptions and high commodity prices, India's economy continues to demonstrate resilience, supported by strong infrastructure spending and growth-supporting fiscal and monetary policies,” said ADB Country Director for India Mio Oka.

“Continued strength in the services sector, including AI-related investments, alongside improvements in agricultural productivity and steady manufacturing growth, will help sustain the growth momentum,” she said.

ADB, however, lowered its FY28 growth forecast marginally to 7.1% from 7.3%, largely reflecting the stronger GDP base.

Beyond the temporary impact of higher fuel prices and inflation, domestic demand is expected to remain the main engine of growth in FY27 and FY28, supported by robust tax collections, low interest rates, rising household incomes, and the anticipated revision of government salaries and pensions in the next financial year.

Inflation forecast cut, risks remain

ADB cut its FY27 inflation forecast to 5% from 5.2%, saying the recent rise in prices has been more gradual than previously anticipated. Inflation is expected to ease to 4% in FY28, unchanged from its July forecast, as energy prices moderate and agricultural supply recovers under a normal monsoon assumption.

While inflation is expected to remain within the Reserve Bank of India’s target range, the central bank may consider raising the repo rate if inflationary pressures intensify, ADB said.

Strong public spending remains a key growth driver. Central government capital expenditure rose 29.9% in the first quarter of FY27 and is on track to meet the government’s annual target of 11.5%, according to the report.

Private investment is also expected to pick up, supported by measures to improve the investment climate, including better logistics infrastructure, regulatory reforms and a strong pipeline of projects.

Despite higher fertiliser subsidy spending and fuel tax cuts, the fiscal deficit is expected to remain around 4.3% of GDP, helped by robust direct tax revenues and additional receipts from oil export taxes and precious metals duties.

The current account deficit is projected to widen in FY27 due to higher commodity prices before narrowing in FY28, aided by lower oil prices and strong export growth. Foreign exchange reserves stood at $740.8 billion, supported by measures taken by the RBI to attract foreign capital, ADB said.

The report also identified prolonged geopolitical uncertainty and weather disruptions linked to El Niño as key risks to the growth outlook. Such disruptions could weigh on agricultural output and raise industrial input costs. Services and construction, however, are expected to remain robust in FY27 and FY28.