ADB cuts India's FY27 growth forecast to 6.6% as energy shocks weigh on demand

New Delhi: The Asian Development Bank (ADB) has cut India's economic growth forecast for fiscal year 2027 (FY27), saying prolonged disruption to global energy markets following the conflict in West Asia is beginning to weigh on domestic demand through persistently high fuel prices.

In its Asian Development Outlook (ADO) July 2026, released on Wednesday, ADB lowered its GDP growth forecast for India to 6.6% from the 6.9% projected in April. Even after the downgrade, the projection is above the International Monetary Fund's estimate of 6.4% for FY27.

The revised forecast also remains higher than ADB's earlier estimate of 6.5% for the current fiscal year, which it had raised to 6.9% in April. While trimming its FY27 outlook, ADB retained its FY28 growth forecast for India at 7.3%.

Slow unwind

According to the report, disruptions to global energy markets are expected to unwind only gradually despite a framework agreement signed in June.

“With impacts extending beyond energy to fertilizers, other commodity prices, and supply chains, inflationary pressures are likely to persist,” the report said.

“Durable implementation of the framework agreement would help normalize global energy markets, but the pace of adjustment is highly uncertain with significant downside risks,” ADB chief economist Albert Park said in the report.

“Economic growth in developing Asia and the Pacific remains resilient, but persistent headwinds caused by the conflict require a careful policy balance between supporting growth and containing inflation,” Park added.

ADB also lowered growth forecasts for Southeast Asia and the Pacific, citing weaker domestic demand and tourism, rising inflation, and higher import costs.

The report warned that renewed conflict escalation and prolonged geopolitical uncertainty remain key risks to the regional outlook.

“These could further tighten energy markets, raise risk premia, and intensify inflationary and external pressures,” it said.

Additional risks

Tighter global financial conditions pose additional risks, with sovereign bond yields and borrowing costs rising and fiscal deficits projected to widen in several economies. Higher tariffs and elevated trade policy uncertainty could also weigh on activity, while rising fertilizer prices continue to threaten agricultural output and food security, the report said.

ADB now expects inflation across developing Asia and the Pacific to average 4.3% in 2026, up from 3% in 2025 and 0.7 percentage points higher than its April forecast. It maintained its 2027 inflation forecast at 3.4%.

The bank lowered growth projections for 2026-27 across most subregions, with developing East Asia the only exception. It left forecasts for the People's Republic of China unchanged at 4.6% for 2026-27 and 4.5% for 2027-28, supported by strong exports and infrastructure investment.

Overall, ADB cut its 2026 growth forecast for developing Asia and the Pacific to 4.9% from 5.5% in 2025, a 0.2 percentage point reduction from its April projection. It maintained its 2027 forecast at 5.1%, expecting activity to recover as current pressures ease.

ADB is a multilateral development bank that supports sustainable, inclusive and resilient growth across Asia and the Pacific. Founded in 1966, it has 69 members, including 50 from the region.