India's economy is expected to grow 6.6 per cent in FY27, according to the Asian Development Bank's July 2026 edition of the Asian Development Outlook. This represents a downgrade from the 6.9 per cent projected in April, as persistently high oil prices continue to weigh on household spending and private demand. The revised forecast comes amid West Asia tensions that have pushed Brent crude prices back closer to $80 per barrel from around $70 last week, following US President Donald Trump's warning of more strikes on Iran. The Manila-based lender attributed the downgrade to elevated crude oil prices that have increased transportation costs and weakened consumer purchasing power, prompting the bank to trim its FY27 growth projection. Despite the reduction, India's GDP is poised to grow at the fastest pace in FY27 and FY28 compared with other Asian economies, with the Indian economy having grown 7.7 per cent in FY26 according to the Ministry of Statistics and Programme Implementation. As per Business Standard, the FY2027 growth forecast remains unchanged from April, underpinned by improved global conditions and export competitiveness gained through trade agreements with various partners.
OPEC stated in its latest monthly Oil Market Report that India's near-term outlook remains comparatively favourable, with output and sentiment indicators through May pointing to continued healthy growth. According to Business Standard, services and domestic demand provide the main support, while manufacturing remains resilient. The organisation noted that risks around the baseline have increased somewhat, but emphasized that India's economy remains well supported by ongoing steady domestic demand. However, OPEC warned that a prolonged elevated level of imported energy expenditures could widen fiscal and external pressures and complicate the RBI's inflation-growth trade-off. The consequences of rising fuel and fertiliser subsidies, possible compensation to oil-marketing companies, lower fuel-tax revenues if excise duties are reduced, and higher interest costs could all complicate deficit reduction in the fiscal year 2026/27. The 2026 economic growth forecast for India remains at 6.6%, unchanged from the previous month's assessment, with steady momentum projected for the end of 2026.
ADB attributed the downgrade to elevated energy prices, which are eroding household purchasing power and squeezing real incomes. According to Moneycontrol reports, higher oil prices have specifically weakened consumer spending, prompting the bank to lower its FY27 growth forecast. The lender also warned that sustained energy inflation is likely to dampen private demand, while geopolitical uncertainties and weather-related disruptions to agriculture continue to pose downside risks to the outlook. Despite these near-term challenges, ADB expects India to remain one of the world's fastest-growing major economies. For South Asia, the lender said elevated oil and transportation costs are dampening consumer sentiment and private demand, while India's medium-term growth outlook continues to be supported by policy measures, public investment, services exports and improving global conditions. The growth will be supported by policy interventions to attract more foreign capital, fuel tax cuts, targeted credit support, strong services exports, and public capital expenditure.
ADB raised its FY27 inflation forecast for India to 5.2 per cent from 4.5 per cent projected in April, reflecting the impact of higher oil and food prices as well as rupee depreciation. The bank has raised its retail inflation projection by 70 basis points to 5.2 per cent for FY27, accounting for heatwaves, higher oil prices and a weaker rupee. The inflationary pressure stems from the same factors driving the growth downgrade, including elevated energy costs and currency weakness. Food inflation is expected to face additional pressure from heatwaves and the fading of favourable base effects, adding to broader price pressures across the economy. The lender also noted that food inflation is expected to face additional pressure from heatwaves and the fading of favourable base effects, adding to broader price pressures across the economy. Regional inflation is now forecast at 4.3 per cent this year compared to 3 per cent in 2025 - an upward revision of 0.7 percentage points from April. According to the ADB, disruptions in global energy markets have spread beyond energy to fertilisers, other commodities and supply chains, keeping inflationary pressures elevated across the region. While ADB's inflation forecast for FY27 is marginally higher than the 5.1 per cent projected by the Reserve Bank of India, the agency has retained its FY28 inflation forecast at 4.0 per cent, expecting fuel and food prices to normalise.
Despite the FY27 downgrade, ADB expects India to remain one of the world's fastest-growing major economies. The bank projects 7.3 per cent growth for FY28, unchanged from its earlier estimate and higher than the IMF's projection of 6.7 per cent. Growth will be supported by government measures aimed at attracting foreign investment, fuel tax reductions, targeted credit support, resilient services exports and sustained public capital expenditure. As reported by the ADB, these measures are expected to continue supporting economic momentum despite the current headwinds from elevated energy costs. The outlook is underpinned by improved global conditions and export competitiveness gained through trade agreements with various partners. India is expected to implement at least two more free trade agreements in the current year, which will further boost export competitiveness. The 2027 growth forecast is maintained at 5.1 per cent, reflecting recovering activity as energy market disruptions ease. However, the ADB noted that disruptions in global energy markets are likely to unwind only gradually despite a framework agreement reached in June, with risks tilted to the downside driven by heightened geopolitical tensions or weather-induced weakness in agriculture.
ADB also lowered South Asia's growth forecast to 6.0 per cent in 2026 from 6.3 per cent projected earlier, citing higher oil prices, rising freight costs and uncertainty over remittance flows. The revision was largely driven by India, where elevated oil and transportation costs are weighing on consumer sentiment and private demand. For developing Asia and the Pacific, the lender cut its 2026 growth forecast to 4.9 per cent from 5.1 per cent growth in 2025. The latest estimate is 0.6 percentage points below the 5.5 per cent growth recorded in 2025. These revisions come as the prolonged conflict in West Asia has disrupted global energy supplies and supply chains, increasing production costs and slowing economic activity across several economies. The prolonged conflict in the Middle East has disrupted energy supplies and supply chains, raising production costs and reducing economic activity across the region. These regional challenges highlight the global impact of geopolitical tensions on economic growth prospects, with disruptions to global energy markets expected to unwind only gradually despite a framework agreement signed in June.
