After strong Q2 numbers, ADB raises its India growth forecast to 7.2% in FY26

The Asian Development Bank on Wednesday upped India’s GDP forecast to by 0.7 percentage points to 7.2% in FY26, reflecting stronger third-quarter expansion as tax cuts supported consumption.

“The 2026 forecast stays unchanged at 6.5%,” said the ADB in its Asian Development Outlook, December 2025, which was released on Wednesday.

ADB joins some other agencies that have pegged India’s GDP growth estimates near 7.5% following the rate rationalisation under the goods and services tax (GST), which is expected to boost consumption, as well as the income tax cuts announced in the Union Budget 2025-26.

The finance ministry expects the economy to grow at over 7% this fiscal, while the Reserve Bank of India has pegged real GDP growth for FY26 at 7.3%.

The GST rate cuts that came into effect on September 22 led to record sales of automobiles and consumer goods. Second quarter GDP growth came in at a higher-than-anticipated 8.2%, following a growth of 7.8% in the first quarter. The economy is seen to have grown at 8% in the first half of the fiscal. The impact of the GST rate cuts is seen to continue in the third quarter as well, boosting growth in the period.

“Growth in India exceeded expectations as GDP expanded by 8.2% in the second quarter of the current fiscal year (July to September 2025), the fastest growth in six quarters, driven by strong private consumption and despite muted government consumption,” the report noted.

It also noted that India’s exports were also resilient—notably rising to the US up to July, driven by tariff exempt sectors such as smartphones and pharmaceuticals and frontloading in other sectors.

“Lifted by stronger-than-expected growth in India, the Asia-Pacific region’s economy is now projected to expand by 5.1% this year, compared with a 4.8% forecast in September,” the report further noted, adding that the upgrade is due to stronger-than-expected growth in India, driven by robust domestic consumption, and solid export performance in the region’s high-income technology-exporting economies.

Inflation in India eased to 0.3% in October, led by a sharp fall in food prices. “This decline was due to GST reductions and food price deflation for a second successive month, supported by favourable agricultural output and benign weather conditions,” the report further said.

Inflation in developing Asia and the Pacific is expected to ease further to 1.6% this year, compared with a 1.7% projection in September, the report said, adding that this mainly reflects lower-than-anticipated food inflation in India. The region’s inflation forecast for next year remains at 2.1%, it added.