Asian Development Bank Slashes India's FY27 Growth Forecast to 6.6% Amid High Energy Prices

Asian Development Bank Slashes India's FY27 Growth Forecast to 6.6% Amid High Energy Prices​

The Asian Development Bank (ADB) has revised its growth projection for the Indian economy in Fiscal Year 2027 (FY27), scaling it down to 6.6 percent from an earlier forecast of 6.9 percent. This recalibration comes as elevated oil and transportation costs begin to exert pressure on private demand and overall consumer sentiment, according to the ADB's latest Asian Development Outlook report.

Impact of Energy Costs on Economic Growth Projections​

The primary driver for the reduction in growth outlook is the persistent impact of high energy prices. The ADB noted that these rising operational costs are weighing significantly on India's economic trajectory. Despite this challenge, the Manila-based lender maintains a positive stance, suggesting specific policy interventions can mitigate downturns.

Policy support measures identified by the ADB include fuel tax cuts and targeted credit support. Furthermore, the bank highlighted the potential of strong services exports and continued public capital expenditure as key pillars supporting future growth in the country.

ADB's Outlook Compared to IMF Estimates​

The revised projection for FY27 at 6.6 percent remains notably more optimistic compared to the International Monetary Fund's (IMF) most recent estimate, which stands at 6.4 percent. This gap suggests divergent views among global institutions regarding the near-term resilience of India's economy against inflationary pressures.

Looking ahead, ADB projects a rebound in growth to 7.3 percent for FY28, maintaining its previous forecast. This figure is projected to be higher than the IMF's projection for the same fiscal year, which is set at 6.7 percent.

Broader Regional Slowdown and Inflation Outlook​

The slowdown is not limited to India. ADB also lowered the growth forecast for South Asia in 2026, revising it down to 6.0 percent from a previous estimate of 6.3 percent. This regional reduction was attributed to higher oil prices, rising freight costs, and uncertainty surrounding remittance flows across the region.

For developing economies in Asia and the Pacific, ADB tempered its outlook for 2026, lowering the forecast to 4.9 percent from 5.1 percent. The bank cited the prolonged Middle East conflict as a major disruptive factor, noting that it has impacted energy supplies and supply chains, thereby increasing production costs and slowing economic activity.

Inflationary Trends and Future Trajectories​

In reflecting the pass-through effect of rising commodity prices, ADB increased its inflation forecast for India in FY27 to 5.2 percent from 4.5 percent. This adjustment accounts directly for the higher energy and food prices currently impacting the economy.

However, the outlook remains stable for the subsequent year. The Asian Development Bank retained its FY28 inflation estimate at 4 percent, suggesting a gradual moderation of inflationary pressures post-rebound.