ADB raises India's growth forecast to 7% for FY27 on strong demand

The Asian Development Bank (ADB) raised its growth forecast for India to 7% for FY2026-27 from 6.6%, citing stronger-than-expected growth, resilient domestic demand, and sustained investment following a robust 7.8% GDP rise in Q1.

The Asian Development Bank (ADB) has raised its growth forecast for India to 7 per cent for FY2026-27 from 6.6 per cent earlier, while projecting the economy to expand 7.1 per cent in FY2027-28, citing stronger-than-expected growth, resilient domestic demand and sustained investment.

The upgrade, announced in its Asian Development Outlook September 2026, follows 7.8 per cent year-on-year GDP growth in the first quarter of FY2026-27, supported by robust investment demand, resilient consumption and growth in manufacturing and services, ADB said.

Key Growth Drivers and Policy Support

ADB has, however, lowered its FY2027-28 growth forecast from 7.3 per cent to 7.1 per cent, largely due to the stronger base created by the higher growth expected in FY2026-27. It expects domestic demand to remain the main driver of growth in both years, supported by robust tax collections, low interest rates, rising household incomes and the anticipated revision of government salaries and pensions in FY2027-28.

“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,” ADB Country Director for India Mio Oka said. She added that continued strength in services, including AI-related investments, along with improvements in agricultural productivity and steady manufacturing growth, would help sustain the growth momentum.

Boost in Private Investment Expected

Public spending remains an important support for growth, with central government capital expenditure rising 29.9 per cent in the first quarter of FY2026-27 and remaining on track to meet its annual target of 11.5 per cent. ADB also expects private investment to pick up, supported by improvements in logistics infrastructure, regulatory reforms and a strong pipeline of projects.

Inflation Outlook and Monetary Policy

On inflation, ADB lowered its FY2026-27 forecast to 5 per cent from 5.2 per cent, while retaining its FY2027-28 projection at 4 per cent. It said inflation could remain within the Reserve Bank of India’s target range, although the central bank may consider raising the repo rate if price pressures intensify.

Potential Risks to Growth

ADB also flagged prolonged geopolitical uncertainty and weather disruptions linked to El Niño as risks to future growth, which could affect agricultural output and raise industrial input costs. However, it expects services and construction to remain robust through FY2026-27 and FY2027-28.

Corroboration from Other Ratings Agencies

The ADB’s upgrade comes alongside higher growth forecasts from Fitch Ratings and S&P Global. Fitch has raised its FY2026-27 projection to 6.9 per cent from 6.4 per cent, while S&P Global has increased its forecast to 7 per cent from 6.6 per cent, citing strong consumption and industrial activity. Both, however, expect growth to moderate in the second half of the fiscal year. (ANI)

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