India’s growth is now expected to slow to 6.5% in FY26 and FY27 after the Asian Development Bank trimmed its outlook, citing higher U.S. tariffs on Indian goods. The revised forecast points to trade pressures in the near term, even as strong local spending and expanding service exports help steady the economy. The projection keeps India among the fastest-growing large economies in Asia.
Why The Outlook Was Lowered
The ADB’s updated view signals concern that fresh or higher tariffs in the United States will limit sales of Indian products. Weaker external demand can reduce factory output, ease hiring plans, and weigh on new investment. That pressure is showing up in the two-year horizon the bank tracks for the fiscal years ending in 2026 and 2027.
“The ADB forecasts India’s economic growth at 6.5% for FY26 and FY27, a cut from previous estimates due to high US tariffs on Indian goods.”
The revision follows a period when India had been expanding faster than many peers. Officials and analysts have watched trade frictions with care, aware that export-linked industries can face sudden shifts when tariffs change.
What Could Be Hit By Tariffs
Manufacturers exposed to U.S. demand face the most pressure. Sectors like textiles, light engineering, and some consumer goods are vulnerable to higher costs at the border. Auto components and specialty chemicals may also feel strain if orders slow or buyers switch suppliers.
- Exporters to the U.S. risk thinner margins or lost orders.
- Factory employment growth could moderate in affected clusters.
- New capital spending plans may be delayed until trade clarity improves.
Domestic Demand And Services Cushion The Blow
The ADB notes that local consumption and investment remain strong. That support helps offset external headwinds and limits the drag from tariffs. A large home market, ongoing public projects, and rising urban incomes provide a buffer.
“While tariffs will impede growth, strong domestic demand and service exports are expected to cushion the impact, maintaining India’s position as a leading regional economy.”
Service exports, led by information technology and business services, continue to benefit from global demand for digital work, cloud support, and software maintenance. These areas face fewer tariff barriers, helping stabilize export earnings even as goods shipments come under stress.
Regional Standing And Policy Choices
Even at 6.5%, India remains a key driver of Asia’s expansion. The revised path still outpaces many regional peers that are managing slower trade and tight global financial conditions. The balance between domestic engines and external shocks will shape growth through FY27.
Policy options are likely to focus on easing supply bottlenecks, keeping inflation in check, and supporting jobs in export-linked hubs. Steps that lower logistics costs, improve port efficiency, and speed trade facilitation could help firms stay competitive. Targeted support for upskilling may aid workers if export demand softens.
What To Watch Next
Companies will look for signs of tariff relief or new trade arrangements that can stabilize order books. Investors will monitor high-frequency data on factory output, services activity, and credit growth to gauge momentum. Budget priorities on infrastructure and incentives for manufacturing could also influence the pace of expansion.
The ADB’s message is clear: trade headwinds matter, but India’s internal engines and service strength keep growth on a firm track. The near-term test lies in managing export pressures without letting investment or hiring slow too much.
Bottom line: 6.5% growth in FY26 and FY27 reflects a cooler export pulse, offset by steady domestic demand and resilient service exports. Watch for tariff developments, shifts in global demand for tech services, and policy steps to sustain jobs and investment.
