India’s Economy Poised for 6.7% Growth
India’s economy is projected to grow by 6.7% in the current fiscal year, buoyed by strong domestic demand, increasing rural incomes, and easing inflation, according to the Asian Development Bank’s (ADB) latest report. The ADB anticipates that this growth momentum will continue into the next fiscal year, with a forecasted GDP increase of 6.8% for FY26. However, the Reserve Bank of India (RBI) has adjusted its growth estimate down to 6.5%, citing global trade challenges and policy uncertainties.
Resilience Amid Global Challenges
Mio Oka, ADB’s Country Director for India, highlighted the resilience of the Indian economy despite external pressures. She pointed to significant infrastructure development and job creation initiatives by the Government of India as key drivers of growth. Oka noted that improvements in the manufacturing sector, regulatory reforms, and a robust services sector are contributing positively to the economic landscape. Additionally, the introduction of tax incentives for the middle class is expected to further support economic expansion.
The ADB report emphasizes that consumption will play a crucial role in driving growth. Rising rural incomes and increased demand from urban middle-class households are anticipated to enhance consumer spending. With personal income tax rates being lowered, consumer confidence is expected to rise, contributing to a projected inflation rate of 4.3% in FY26, which may ease to 4% in FY27.
Monetary Policy Adjustments
In response to changing economic conditions, the RBI has made adjustments to its monetary policy, including two rate cuts this year. The recent reduction of 25 basis points has brought the repo rate down to 6%. The ADB report suggests that declining inflation rates could allow for further rate cuts, providing additional support to the economy amid global uncertainties.
The services sector is expected to remain a significant contributor to economic growth, driven by increased demand for business services, education, and healthcare. Meanwhile, the agriculture sector is projected to maintain strong growth, particularly with successful winter crop sowing, including wheat and pulses. The manufacturing sector, which experienced slower growth in FY25, is also expected to regain momentum.
Investment and Infrastructure Development
Investment in urban infrastructure is set to increase, supported by a new government fund with an initial allocation of Rs 100 billion (approximately USD 1.17 billion). While global economic uncertainties may temporarily affect private investment, the ADB report indicates that lower borrowing costs and planned regulatory reforms could stimulate investment in the long run. However, the report also identifies near-term risks to growth, including the impact of recent increases in US tariffs on Indian exports and potential fluctuations in global commodity prices. Despite these challenges, India’s relatively stable macroeconomic environment is expected to mitigate some of these risks. The ADB’s growth projections were finalized prior to the announcement of new US tariffs on April 2. While the baseline projections do not account for these tariffs, the report includes an analysis of their potential impact on growth across Asia and the Pacific.
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