The multilateral lender also lowered its growth estimate for FY28 to 7.1 per cent from 7.3 per cent earlier. ADB said the downgrade for FY28 largely reflects the higher growth base in FY27. The revised projections were released in ADB’s September 2026 Asian Development Outlook on Wednesday.
“The Indian economy remains resilient despite heightened geopolitical tensions and high commodity prices,” ADB said.
Strong Q1 growth drives upgrade
Services remained a major driver of growth, expanding 10 per cent. Financial, real estate and professional services grew 12.1 per cent. Manufacturing also recorded strong growth of 9.2 per cent, helped by electronics, textiles, and rubber and plastics.
Investment and exports also supported economic activity. Gross fixed capital formation rose 11.9 per cent in the first quarter, its fastest growth in four years, backed by both public and private investment. Exports of goods and services increased 12 per cent.
Consumption also remained resilient, supported by rural and urban demand, lower tax rates, higher subsidies and limited pass-through of higher input costs to consumers. Agriculture grew 3.6 per cent despite a below-normal monsoon.
Investment, services exports to support growth
Private investment is also expected to stay strong in sectors such as data centres and energy, where project pipelines remain robust. ADB said government measures to make private investment more attractive, including support for logistics infrastructure and regulatory strengthening, should also support corporate investment. Central government capital expenditure is on track to meet the FY2026 budget target of 11.5 per cent growth.
Exports are likely to provide additional support despite uncertainty in global trade. ADB expects electronics exports to remain healthy, while services exports could grow faster than imports as the development of artificial intelligence increases demand for technology services.
The lender also expects India’s trade agreements with the United Kingdom and the European Union to support net exports in FY28.
ADB expects net exports to contribute to GDP growth in both FY27 and FY28. Goods imports are also likely to rise rapidly, driven by stronger domestic demand for capital and intermediate goods.
ADB cuts FY27 inflation forecast
ADB has lowered its inflation forecast for FY27 to 5 per cent from 5.2 per cent estimated in July. The revision reflects lower-than-expected transmission of higher global energy prices to retail consumers.
The FY28 inflation forecast has been retained at 4 per cent. ADB expects energy prices to ease and agricultural supplies to recover, assuming a normal monsoon.
However, price pressures could increase in the second half of the current fiscal year as the impact of earlier GST rate cuts fades and higher input costs pass through to retail prices.
West Asia tensions, El Nino pose risks
The risks are already visible in monsoon conditions. ADB said rainfall was 14.7 per cent below normal as of September 13, with larger deficits in central and southern India. The shortfall could affect kharif crops such as rice, pulses and oilseeds.
A delayed withdrawal of the monsoon and higher temperatures could lead to post-harvest losses and affect rabi crop yields. The risks are higher as reservoir levels are currently below those recorded a year earlier.
ADB also said rising input costs could weigh on industrial growth, particularly in the second half of FY27.
