ADB predicts stronger Indian economy in 2026, cites government spending

The Asian Development Bank has upgraded its forecast for India’s real GDP growth for FY2026‑27 to 7.0%, up from the previous 6.6% estimate. The upward revision reflects robust government investment programmes and a notable pick‑up in export performance. In the same update, the bank raised its projection for South Asia’s overall growth to 6.4% from the July figure of 6.0%.

According to the ADB, growth across the developing Asia‑Pacific region could slow to 5.0% in 2026, down from 5.5% in 2025, before edging back to 5.1% in FY2027‑28. ADB President Masato Kanda warned that while the economic landscape remains flexible, risk factors are on the rise. A strong El Niño combined with dry weather may cut agricultural yields and reduce hydro‑electric output, pushing up food and energy costs and hitting the poorest segments hardest.

Kanda emphasized that governments must prioritize protecting vulnerable households in the face of a prolonged energy squeeze and renewed financial‑market volatility. The bank reiterated its support for policies that encourage high‑impact public spending, a vigorous AI‑driven technology export sector and other innovation‑centric growth drivers.

Geopolitical volatility continues to loom, with the potential expansion of Middle‑East conflicts and an escalation of the Russia‑Ukraine war keeping global energy prices high and commodity markets unstable. The September 2026 ADB outlook also trimmed the regional inflation projection to 4.2% from 4.3% after price‑stabilisation measures softened the impact of soaring energy prices. The institution highlighted two main risks: an intensifying geopolitics‑driven conflict environment and a persistent, strong El Niño expected to last into the first quarter of 2027, which could further inflate fuel and food prices. Additional downside considerations include a rapid decline in AI‑sector stock valuations, tighter financing conditions and renewed uncertainty around trade policies.