RBI Grade BNABARD ESISEBI
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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
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- 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.
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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 Factorsmost asked
- 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.
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