In India, growth is projected to accelerate to 6.7% in fiscal year (FY) 2025 and 6.8% in FY2026, according to the latest forecast by the Asian Development Bank (ADB). Growth in the sub-region is expected to rise from 5.8% in 2024 to 6.0% in 2025 and 6.2% in 2026. Falling inflation, monetary policy easing, improved agricultural production boosting rural income, and more favorable fiscal policy including tax cuts for middle-income households will support domestic demand in India. Consumption will be a major driver of growth, rising on the growth in rural incomes, the report noted.
On the supply side, the outlook for services remains robust, and the manufacturing outlook will improve, helped by reduction in energy costs. Inflation in India is projected to moderate to 4.3% in FY2025 and 4.0% in FY2026, supported by easing food and global oil prices. The report highlighted that a major risk arises from US tariff levies on India’s and other countries’ exports, which could reduce trade and investment flows and potentially create volatility in the domestic financial market. However, these risks could potentially be mitigated by a trade agreement between India and US, which is being negotiated and the fact that India’s merchandise exports to the US account for a relatively low 2% of GDP, ADB noted.