ADB, IMF Cuts India’s GDP Growth Projection: Key Factors Behind Economic Growth Rate Revision

India’s economic growth projections have faced downward revisions in recent reports from both the Asian Development Bank (ADB) and the International Monetary Fund (IMF), and the move is primarily driven by rising global energy costs stemming from the Middle East crisis. The ADB has lowered its forecast for India’s GDP growth to 6.6 per cent for FY2026, citing pressure on real incomes from elevated energy prices. Similarly, the IMF trimmed its projection for fiscal year 2027 to 6.4 per cent,  considering that energy shocks are offsetting positive momentum from private consumption and services activity. 

Meanwhile, despite these cautious outlooks, India remains among the world's fastest-growing major economies, sustained by robust policy interventions, strong service exports, and resilient domestic demand despite the current geopolitical headwinds. 

Asian Development Bank Lowers India’s Growth Forecast

The Asian Development Bank (ADB) has cut India's GDP growth forecast for the current fiscal year to 6.6 per cent from an earlier estimate of 6.9 per cent, due to concerns over rising energy prices triggered by the Middle East crisis. Despite this moderation in growth, India continues to be the world's fastest-growing major economy.

India's GDP growth forecasts are revised down to 6.6 per cent for FY2026 (ending 31 March 2027) and maintained at 7.3 per cent for FY2027, Asian Development Outlook (ADO) July 2026 said.

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"The FY2026 (2026-27) forecast is lowered from 6.9 per cent projected in April, reflecting elevated energy prices, which squeeze real incomes. Growth will be supported by policy interventions to attract more foreign capital, as well as fuel tax cuts, targeted credit support, strong services exports, and public capital expenditure," it said.

It said the growth forecast for fiscal 2027 was unchanged from April, based on improving global conditions and export competitiveness gained through trade agreements with various parties.

However, it said risks were tilted to the downside due to heightened geopolitical tensions or weaknesses stemming from the agricultural season. As for inflation, the latest ADO has sharply raised it to 5.2 per cent from 4.5 per cent projected in April.

"Upward revisions reflect higher global energy prices from the Middle East conflict feeding through to fuel, transport, and food costs across the subregion. India's FY2026 (2026-27) inflation forecast is revised up to 5.2 per cent, driven by higher oil prices and a weaker rupee, with food inflation adding further pressure from heatwaves and fading of favourable base effects," it said.

IMF Trims Forecast 

The International Monetary Fund (IMF) has said that the Indian economy will grow by 6.4 per cent in fiscal year 2027, slightly lower than the 6.5 per cent projected in April. In its revised World Economic Outlook (WEO), the IMF has projected that India will grow by 6.7 per cent in fiscal year 2028, 20 basis points higher than the 6.5 per cent projected in April.

"India remains among the fastest growing major economies, with growth projected at 6.4 per cent supported by strong momentum in private consumption and services activity," the IMF said.

"Factors that are underpinning the forecast revisions are basically twofold. On the upside, we have the better-than-expected outcome in the most recent data, but we also have high-frequency indicators through April showing quite a bit of resilience in overall economic activity," Deniz Igan, Division Chief (World Economic Studies), told reporters here on projections for India.

But these positive effects are then more than offset for 2026 by the higher energy prices in the baseline and in the July update, as well as the greater pass-through of those higher oil prices to prices at the pump in India, she said.

"Moving into 2027, the IMF expects a strengthening of the economy with the energy shock dissipating and medium-term growth being estimated at around 6.5 per cent, and output closing, we expect some pickup there," Igan added.

Global growth is projected to slow to 3 per cent in 2026 and 3.4 per cent in 2027, compared with an average of 3.5 per cent in 2024-25. This is broadly unchanged from the April forecast, compared with the 3.5 per cent average in 2024-25.

The International Monetary Fund (IMF) said the slight slowdown reflects the fact that advances in artificial intelligence (AI) and its applications have partially offset the effects of the war in the Middle East.

This story is written with inputs from the agency feed (PTI).