India’s FY2025 Growth Forecast Trimmed to 6.5% Amid US Tariffs, Trade Uncertainty: ADB

New Delhi, July 23 (Wednesday) – The Asian Development Bank ADB has cut India’s GDP growth projection for FY2025 to 6.5%, down from 6.7% shown in its April outlook, due to rising uncertainty in global trade, including the impact of baseline tariffs from the US on Indian exports.

India will remain a fast-growing major economy globally, backed by strong domestic consumption growth and a revival of rural demand, which are expected to emerge as strong counterbalancing effects.

Apart from the impact of lower global growth and the direct effect of additional US tariffs on Indian exports, increased uncertainty regarding policy could affect investment flows, according to the ADB’s July 2025 Asian Development Outlook report.

However, economic activity continues to be strong, and the revival of rural demand will boost domestic consumption, it said.

To be sure, there are mixed global forecasts for India’s growth.

Key Forecasts for India

India’s July 2025 Asian Development Outlook (ADO) slightly lowered the FY2025 GDP growth projection to 6.5% (from 6.7%) and FY2026 to 6.7% (from 6.8%). Inflation projections improved with FY2025 downgraded to 3.8% (from 4.3%) and FY2026 unchanged at 4.0%. The update shows a revised growth expectation and a relatively optimistic inflation outlook compared to the April 2025 estimates.

Growth Drivers and Constraints

ADB attributed India’s resilience to several domestic factors:

• Strong rural consumption, boosted by above-normal monsoon expectations.
• Continued momentum in services and agriculture is identified as a key driver of growth.
• Healthy fiscal buffers, including higher-than-expected RBI dividend transfers.
• Easing monetary conditions, including cuts to the repo rate and the cash reserve ratio (CRR), are expected to support an investment uptick in FY2026.

However, the forecast flagged significant headwinds:

• Heightened policy uncertainty from the US may affect investment flows.
• US baseline tariffs are already affecting export volumes, particularly in sectors such as electronics, textiles, and processed goods.
• Global slowdown and tighter external financial conditions may weigh on capital inflows.

Inflation Trends and Policy Levers

Headline inflation for FY2025 is projected to moderate to 3.8%, sharply down from earlier estimates, largely due to:

• Improved agricultural output on the back of good rainfall.
• A decline in global food and oil prices.
• Strong monetary and fiscal discipline was adopted by the Reserve Bank of India and the Centre.

The inflation projection for FY2026 remains steady at 4.0%, reflecting anticipated stability in food and fuel prices, alongside controlled core inflation.

Strategic Outlook

India’s medium-term outlook remains strong, with ADB projecting a growth rebound to 6.7% in FY2026, driven by:

• Increased capital formation and infrastructure push.
• Greater policy predictability after the expiry of trade truce deadlines in August 2025.
• Supportive global crude dynamics, assuming Brent stays below $70/bbl.

Th e risks, however, remain tilted to the downside:

• A re-escalation in US-PRC trade tensions could shave off 0.5-1.4 percentage points from regional GDP.
• A renewed Middle East conflict may drive up oil prices and increase import costs.
• The US remittance tax, thoughmarginal, may slightly affect consumption in remittance-dependent regions like Kerala.

About India in ADB Context

India is a founding member of the Asian Development Bank and one of its largest borrowers. The country’s diversified economy spans services, agriculture, and manufacturing, with strong macroeconomic fundamentals and improving ease of doing business. It is listed on both NSE and BSE, and is regularly tracked in ADB’s regional and global outlooks.

India remains on course for a resilient performance despite trade turbulence, with domestic strength acting as the economy’s bulwark in FY2025.

REF: https://www.adb.org/sites/default/files/publication/1069836/asian-development-outlook-july-2025.pdf

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