ADB raised India’s FY27 growth forecast to 7%

The Asian Development Bank (ADB) has raised India's growth forecast for fiscal year 2027 (FY27) to 7%, up from the previously predicted 6.6%. This increase is attributed to robust public investment and strong performance in the services sector and electronics exports. The forecast was based on India's GDP growth of 7.8% in the June quarter, driven by solid investment demand, steady consumption, and growth in manufacturing and services.

However, the outlook for FY28 has been lowered to 7.1% from the previous 7.3%, reflecting a stronger growth base. Despite supply disruptions and high commodity prices, India's economy has shown resilience, supported by infrastructure spending and favorable fiscal and monetary policies. Mio Oka, ADB's country director for India, stated that growth would continue to be driven by the services sector, particularly AI-related investments, and improvements in agricultural productivity and manufacturing.

Key risks to the outlook include geopolitical uncertainty and El Nino-related disruptions, which could negatively impact agricultural output and raise industrial input costs. However, domestic demand is expected to remain the main engine of growth in FY27 and FY28, supported by strong tax collections, low interest rates, rising household incomes, and revisions to government salaries and pensions in FY28.

Inflation is forecasted to ease from 5% in FY27 to 4% in FY28, as energy prices moderate and agricultural supplies recover.

Overall, strong public spending and private investment are expected to support economic growth. The fiscal deficit is anticipated to remain around 4.3% of GDP, bolstered by strong direct tax revenues and increased receipts from oil export taxes and precious metals duties.