Tariff Tensions: ADB Adjusts India's Economic Forecast Amidst US Tariff Concerns

The Indian economy, initially showing a promising growth of 7.8% in the first quarter, is now forecasted by the Asian Development Bank (ADB) to grow at 6.5% for the current fiscal year due to the impact of US tariffs on exports. The ADB's earlier prediction of 7% growth was revised downwards due to concerns over significant tariffs on Indian shipments.

The report suggests that while India's GDP is expected to be adversely affected by the reduced export growth in FY26 and FY27 due to tariff implementations, the nation's relatively lower reliance on exports as a part of GDP, along with increased exports to other nations and strong service exports, will help cushion the blow. The fiscal deficit is anticipated to rise beyond the budget estimate of 4.4% of GDP, partly due to GST reductions, yet is predicted to stay lower than the FY25 figure of 4.7% of GDP.

Meanwhile, consumer inflation is set at a modest 3.1% for FY26 due to rapid food price declines. With the Reserve Bank of India's monetary easing measures, lending rates are down, potentially boosting domestic consumption and investment. However, muted foreign direct investments amidst global uncertainties could affect international reserves, despite their robust status.