The Asian Development Bank (ADB) on Wednesday raised India’s growth forecast for FY26 to 7.2% from 6.5%. ADB says that the recent tax cut has boosted domestic demand, which has provided a big support to growth. This 0.7% increase in India’s growth also lifts the entire economy of Asia. Now the growth of Asia is estimated to be 5.1% in 2025, which was earlier 4.8%.
Expectations increased for second quarter results
According to ADB’s “Asian Development Outlook” December 2025, India’s growth estimate for 2025 has been reduced to 7.2%. The report said that the better performance of the second quarter (July-September) has shown this rise. India recorded 8.2% GDP growth in this quarter, which is the highest in the last six quarters. The growth in the first quarter was 7.8%. Due to this, the average growth of half a year became 8%.
According to the report, this fast trend of growth came due to the strength spread in many sectors. Manufacturing and services sectors remained strong, while on the demand side both consumption and investment increased. Although the estimate for FY26 has been increased, the estimate for FY27 has been kept at 6.5% only. The report said: India’s 2025 growth projection has been raised to 7.2% after better-than-expected growth in the third quarter, mainly due to increased domestic consumption due to recent tax cuts.
RBI also increased growth
The Central Bank of India has also recently increased the GDP estimates. RBI has increased the growth for this financial year from 6.8% to 7.3%. However, the bank believes that growth may remain a bit slow in the second half, expecting 7% in Q3 and 6.5% in Q4. The ADB report believes that growth may moderate slightly in the coming months, because the central government may reduce capital expenditure as part of fiscal consolidation. At the same time, increased tariff rates on Indian goods by America can hinder the growth of exports. Despite this, consumption is expected to remain strong due to the rural economy, cut in GST rates and good credit growth.
On the supply side, the report says that due to weak exports and increasing imports, there may be pressure on industrial demand. The services sector, which showed a growth of 9.3% in the first half of FY26, is expected to remain strong going forward. Strong growth in FY26 will create a slightly tougher base effect for the early quarters of FY27. But recent steps by the government like changes in labor laws, easing of GST, relaxation in import rules on some products and credit support to exporters affected by US tariffs will support growth.
Inflation expected to decline in FY26
ADB also talked about risks. The report said: There is a threat from increasing trade tensions or weather-related shocks, but if US-India talks reduce tariffs then growth may increase further. Inflation is expected to decline in FY26. The report has reduced the inflation estimate from 3.1% to 2.6%. The reasons for this have been said to be better monsoon, good crop and GST cut. Inflation has come down significantly in recent months due to the fall in the prices of vegetables and pulses. Inflation may again increase slightly due to base effect at the beginning of FY27, but the overall estimate for FY26 has been kept at 4.2% only.