NEW DELHI: The Asian Development Bank (ADB) on Friday projected India's GDP growth to remain "robust" at 6.9 per cent in the current fiscal, and rise to 7.3 per cent in next fiscal driven by strong domestic demand, and supported by easing financing conditions and lower US tariffs on Indian goods.
In its Asian Development Outlook April 2026 report, the ADB said a prolonged conflict in the Middle East could undermine India's macroeconomic performance through multiple channels, including higher energy prices, trade flow disruptions, and weaker remittance inflows.
It projected inflation to more than double from 2.1 per cent in 2025-26 to 4.5 per cent in the current fiscal due to a rebound in food prices from earlier declines, higher global oil prices, currency weakness, and rising precious metal prices. It projected inflation to ease to 4 per cent in the 2027-28 fiscal on account of lower oil prices and moderating food prices.
"A prolonged conflict in the Middle East is the single biggest risk to the (developing Asia and Pacific) region's outlook, as it could lead to persistently high energy and food prices and tighter financial conditions," said ADB Chief Economist Albert Park. "With renewed trade policy uncertainty posing additional risks, it is essential that governments implement sound macroeconomic policies to sustain growth and contain inflation, with targeted support measures to protect vulnerable households."
ADB expects economic growth in developing Asia and the Pacific to slow to 5.1 per cent in both 2026 and 2027, from 5.4 per cent last year, weighed down by the conflict in the Middle East and continuing trade uncertainty.
The recent surge in energy prices and potential disruptions to fertiliser markets linked to the conflict in the Middle East could lead to inflationary pressure on global food prices, it said.
With regard to India, ADB said GDP growth is projected to decline to 6.9 per cent in current fiscal (April-March), from 7.6 per cent in 2025-26 primarily due to external challenges, and expand to 7.3 per cent in FY2027 as consumption and investment benefit from favourable policies and the external environment improves.
A key policy challenge of India is to rationalise subsidies and transfers to protect vulnerable groups while preserving fiscal space for growth-enhancing public investment, it said.
"Despite a worsening global economic and geopolitical environment, growth in India is forecast to remain robust at 6.9 per cent in fiscal year 2026 (2026-27). Activity will be underpinned by strong domestic demand, supported by easing financing conditions, and lower US tariffs on Indian goods," it said.
ADB's growth projections compare with 6.9 per cent estimated by the RBI, 6.6 per cent by the World Bank, 6.1 per cent by the OECD and 6 per cent by Moody's Ratings.
Growth is projected to rise to 7.3 per cent in FY 2027-28, driven by domestic reforms, the effects of trade agreements with the European Union, and expected government salary increases, ADB added.
In the Asia Development Outlook report released in December, 2025, ADB had projected India's GDP growth at 6.5 per cent for 2026-27 fiscal.
Although rising inflation, especially food and petroleum products, may temper private consumption in the current fiscal, GDP growth in next fiscal would see marked improvement as domestic demand strengthens due to hikes in salaries/pensions of government employees and an uptick in investment benefitting from key regulatory reforms, ADB said.
External demand is expected to strengthen as the benefits from the trade deal with the European Union (EU) boosts exports.
Higher global oil prices due to the Middle East crisis would put upward pressure on inflation, significantly widen the current account deficit, and weigh on growth by increasing input costs. However, the extent of the impact would depend on the degree of pass-through to domestic fuel prices.
"While limited pass-through could cushion the effect on inflation and growth in the near term, it would increase fiscal pressure through higher subsidy requirements," ADB said.
The Manila-based multilateral development bank said with growth remaining strong and inflation likely to average around the mid-point of the inflation target band, the central bank is expected to keep key policy rates at their current level through most of FY2026.
Fiscal consolidation in FY2026 will be driven less by revenue buoyancy and more by expenditure discipline, the ADB said.