Context:
The Asian Development Bank (ADB), in its Asia Development Outlook April 2025, has lowered India’s GDP growth forecast for FY26 to 6.7% from the earlier projection of 7%, citing rising global trade tensions, US tariffs, and geopolitical uncertainties.
Key Forecasts:
| Fiscal Year | GDP Growth (%) | Inflation (%) |
|---|---|---|
| FY2025–26 | 6.7 | 4.3 |
| FY2026–27 | 6.8 | 4.0 |
Major Drivers of the Revision
Global Trade Risks
- The US administration’s new tariff measures (announced on April 2) are a major downside risk.
- ADB warns of reduced trade and investment flows and financial market volatility due to escalating trade barriers.
- The full impact of these tariffs, if implemented and retaliated against, could negatively affect India, as well as regional peers like China and Southeast Asian nations.
Domestic Investment and Financial Market Concerns
- Global economic uncertainty may delay or disrupt investment project completions in India.
- Rising concerns over capital flows and market stability also pose a threat.
Food Inflation and Climate Impact
- ADB flags the agriculture sector’s vulnerability to extreme weather events, which may fuel food inflation.
- A demand-supply mismatch in food production could lead to higher inflationary expectations unless mitigated by structural reforms.
Mitigating Factors
- India’s exports to the US form only about 2% of GDP, limiting direct trade exposure.
- Ongoing India-US trade deal negotiations could help alleviate some of the tariff impacts.
- Supportive monetary and fiscal policies, along with rising rural incomes and moderating inflation, are seen as positive domestic factors for growth.
Additional Insight from Moody’s:
- Moody’s Ratings notes that US tariffs will disrupt the ‘China+1’ strategy, impacting global supply chains.
- However, India may benefit in the long term from trade diversions and companies relocating to tap into India’s large market and cost advantages.
- Such structural shifts will unfold gradually over several years.
Regional Outlook
- Developing Asia-Pacific economies are now projected to grow at 4.9% in 2025, slightly lower than the 5.0% growth in 2024.
- ADB signals further downward revisions likely in July, given the post-April 2 trade developments.
BS
