The Asian Development Bank (ADB) has raised its economic growth forecast for India to 7% for the current fiscal year, increasing the figure from 6.6%, which was projected in July. This increase is attributed to stronger-than-expected economic results in the first quarter, despite supply chain disruptions caused by the Middle East crisis.
In its September 2026 document, 'Asian Development Outlook' (ADO), the multilateral lender noted that this adjustment reflects higher-than-anticipated economic growth in India. In the first quarter of the 2026–2027 fiscal year, GDP grew by 7.8% year-on-year. This growth is supported by sustained investment demand, robust consumption, and stable development in the manufacturing and services sectors.
Furthermore, the economy benefited from smaller-than-expected supply interruptions, maintained capital inflows, and limited pass-through of commodity cost increases into consumer prices, helping to mitigate the impact of the Middle East conflict, according to the report.
Despite supply challenges and high commodity prices, the Indian economy demonstrates resilience, supported by active infrastructure spending and fiscal and monetary policies that bolster growth. Mio Oka, ADB's Director for India, emphasized that further strength in the services sector, including AI-related investments, alongside improved agricultural productivity and stable manufacturing growth, will help maintain the growth momentum.
ADB also forecasts growth of 7.1% in the 2028 fiscal year, slightly lower than the previous forecast of 7.3%, largely due to a higher GDP base. The report indicates that domestic demand will remain the primary driver of growth in both 2027 and 2028 fiscal years, thanks to reliable tax collection, low interest rates, rising household incomes, and expected revisions to government salaries and pensions in the next fiscal year.
Regarding inflation, although it has recently risen, the forecast for the 2027 fiscal year was lowered from 5.2% to 5%, as the growth proved more gradual and aligned with previous expectations. In the 2028 fiscal year, inflation is expected to fall to 4%, as projected in July, provided there is a moderate decline in energy prices and a recovery in agricultural supplies during the normal monsoon season.
Although 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. Strong government spending remains a key growth driver: central government capital expenditure grew by 29.9% in the first quarter of the current fiscal year and is on track to meet the annual target of 11.5%.
The report highlighted that private investment is expected to increase due to government measures aimed at improving the investment climate, including enhancing logistics infrastructure, regulatory reforms, and the presence of numerous projects.
Despite increased fertilizer subsidy spending and fuel tax reductions, the budget deficit is expected to remain around 4.3% of GDP, supported by reliable direct tax revenues and additional receipts from oil and precious metal export taxes.
The current account deficit is projected to widen in the 2027 fiscal year due to higher commodity prices but is expected to narrow in 2028 due to falling oil prices and strong export growth. Foreign exchange reserves have risen to $740.8 billion, achieved through RBI measures to attract foreign capital.
The report noted key risks to future growth related to prolonged geopolitical uncertainty and weather disruptions associated with El Niño, a phenomenon that can raise temperatures and reduce rainfall. These risks could lead to lower crop yields and increased industrial input costs. Nevertheless, the services and construction sectors are expected to remain resilient in the current and next fiscal years.
