Industry Odisha Bureau, Sep 23: The Asian Development Bank now expects India’s economy to grow 7% in FY27. Resilient consumption, strong investment and firm public spending underpin its more optimistic view.
India’s economy has outpaced expectations, and the Asian Development Bank has taken note. The Manila-based lender now projects 7% GDP growth for FY27. That is a 0.4-percentage-point rise from its July estimate of 6.6%.
India’s GDP grew 7.8% year-on-year in the first quarter of FY27. ADB’s September Asian Development Outlook said that pace beat expectations. The upgrade comes despite supply shocks from the West Asia crisis.
Consumers and Factories Anchor India’s Economic Growth
Robust investment demand and resilient consumption drove the first-quarter performance. Manufacturing and services also posted solid growth, the ADB report noted.
Other cushions softened the impact of the Middle East conflict. Supply disruptions proved milder than feared. Capital inflows stayed steady, and firms passed on few input-cost increases.
ADB expects domestic demand to remain the main growth engine in FY27 and FY28. Robust tax collections, low interest rates and rising household incomes should help. Revisions to government salaries and pensions, anticipated next year, add further support.
Mio Oka, ADB’s Country Director for India, credited infrastructure spending and services strength. She said AI-related investments form part of that services momentum. Better agricultural productivity and steady manufacturing should also sustain growth, she added.
Capital Expenditure Sets the Investment Pace
Public spending remains a central pillar of the growth story. Central government capital expenditure rose 29.9% in the first quarter. ADB said it remains on track for the 11.5% annual target.
The lender also expects private investment to strengthen. It cited better logistics infrastructure, regulatory reforms and a strong project pipeline.
India Inflation Eases, but RBI Stays Watchful
Price pressures have risen steadily, yet more gradually than ADB anticipated. It therefore trimmed its FY27 inflation forecast to 5%, from 5.2%. Inflation is projected to ease to 4% in FY28, unchanged from July.
ADB expects energy prices to moderate. It also assumes a normal monsoon will revive agricultural supply. Inflation should stay within the Reserve Bank of India’s target range. However, the RBI may consider raising the repo rate if pressures intensify.
FY28 Growth Forecast Reflects a Higher Base
ADB now sees FY28 growth at 7.1%, down from 7.3% earlier. The trim largely reflects the stronger GDP base built this year. Faster growth now raises the benchmark for next year’s comparison.
Fiscal Deficit and Current Account in Focus
ADB expects the fiscal deficit to hold around 4.3% of GDP. Higher fertiliser subsidies and fuel tax cuts add strain. Robust direct tax revenues should help offset that pressure. Receipts from oil export taxes and precious-metals duties should also contribute.
The current account deficit is expected to widen in FY27 on higher commodity prices. ADB sees it narrowing in FY28, aided by cheaper oil and strong exports. Foreign exchange reserves have climbed to $740.8 billion. ADB partly credited RBI measures to attract foreign capital.
Weather and Geopolitics Pose Key Risks
ADB flagged prolonged geopolitical uncertainty as a key threat. Weather disruption linked to El Niño is another concern. El Niño can raise temperatures and reduce rainfall. Such shocks could lower agricultural output and raise industrial input costs.
Even so, ADB expects services and construction to stay robust through both years. Strong domestic demand offers India a meaningful buffer. How far it holds will depend partly on forces beyond India’s borders.
