India's economic growth predicted at 6.7% according to ADB estimate
Despite the ongoing global tariff war and trade tensions, India's economic momentum remains resilient. The Reserve Bank of India (RBI) and the Asian Development Bank (ADB) have projected India's GDP growth for the fiscal year 2025-26 (FY26) at 6.5% and 6.8% respectively, signalling a strong growth trajectory.
The RBI's optimistic forecast is backed by monetary easing, with expected rate cuts by 0.50-0.75 percentage points, and manageable inflation. The tariff war has increased uncertainty, particularly affecting exports. However, growth in services exports, which account for half of India's GDP and saw continued robust growth at 7.3%, remains supportive. Domestic consumption, especially rural demand, is expected to strengthen on the back of favourable monsoons and policy stimuli.
ICICI Bank anticipates India's trade deficit to widen to $300 billion in FY26, influenced by weaker non-oil exports due to global trade tensions and tariff impacts. However, the growth outlook remains relatively robust due to strong domestic fundamentals and policy support.
Inflation for FY25 is projected at 4.3% and is expected to further moderate to 4% in FY26. Consumption will be a major growth driver, fuelled by reductions in personal income tax rates, which are expected to increase demand from urban middle-class and affluent households.
The tariff war poses significant headwinds by pressuring exports and complicating external trade dynamics. However, these challenges are somewhat moderated by robust domestic demand, supportive monetary policy from the RBI, and hopeful trade agreements.
Among near-term growth risks, higher commodity prices could result from the recent increase in US tariffs on Indian exports and broader global developments. However, some of these risks are expected to be mitigated by India's relatively stable macroeconomic position.
The manufacturing outlook will improve, helped by reductions in energy costs. Policy interventions around water, crop resilience, and diversification, and expansion of processing and storage infrastructure will help mitigate volatility in food prices in India. The outlook for services remains robust, and favourable macroeconomic policies and robust consumption demand will push India's growth higher during the forecast horizon.
In conclusion, while the tariff war imposes a drag on India's external trade and increases uncertainty, robust domestic demand, supportive monetary policy from the RBI, and hopeful trade agreements help sustain a solid growth trajectory in FY26 around 6.4-6.5%. More favourable monetary and fiscal policies are expected to support India's growth, and consumption will be a major growth driver.
ICICI Bank's prediction suggests a potential widening of India's trade deficit to $300 billion in FY26, due in part to the impact of global tariff wars on non-oil exports. Yet, the growth outlook remains relatively robust, as domestic demand, bolstered by monetary easing and policy support from the Reserve Bank of India (RBI), is expected to strengthen.
Consumption will play a significant role in driving growth in FY26, fuelled by reductions in personal income tax rates anticipated to increase demand from urban middle-class and affluent households, thus impacting the overall business and finance landscape in India.
