India on track to cut fiscal deficit, Asian Development Bank says after slashing FY2025 GDP outlook

Multilateral lender (ADB) cuts its fiscal 2025 GDP forecast for India to 6.5 per cent in its latest outlook from the 6.7 per cent it estimated back in April.

“[India] is on track to meet the targeted reduction in its fiscal deficit,” stated the development bank, as it also posted a GDP outlook of 6.7 per cent of the upcoming fiscal 2026 on “reduced policy uncertainty and favourable financial conditions backed by recent reductions of the repo rate and the cash reserve ratio by the monetary authorities.”

In its latest publication, the July 2025 Asian Development Outlook (ADO), the ADB said that despite the forecast slump, India was “still one of the fastest growing major economies in the world.”

The lender said that the economic indicator revision was due to the “impact of US baseline tariffs and associated policy uncertainty.”

“In addition to the effects of lower global growth and the direct impact of additional US tariffs on Indian exports, heightened policy uncertainty may affect investment flows. Despite this, economic activity remains robust, with domestic consumption set to grow strongly on the back of revival of rural demand,” read the outlook report.

The ADB cited the forecast of an above-normal monsoon this time, leading to the agriculture sector being expected to be one of the key drivers of growth, apart from services.

It also reaffirmed the Centre’s strong fiscal position with “higher‑than‑expected dividends from the Reserve Bank of India.”

ADB also stated that lower crude oil prices would support economic activity in FY2025 and FY2026 in India.

The financial observer also revised India’s inflation forecast for FY2025 downward to 3.8 per cent, on “faster-than-expected decline in food prices due to better agricultural production.” It also

On India’s neighbours in South Asia, the ADB stated: “Bangladesh’s actual inflation is marginally lower than forecast for FY2025 amid easing global commodity prices and tighter monetary and fiscal policies, while the outlook keeps the FY2026 forecast the same in anticipation of continued tight policies and moderating global oil prices.”

“Nepal’s inflation forecast is revised downward based on actual 10-month inflation data for food and nonfood items in FY2025, with the FY2026 outlook also lowered due to expected moderation in inflation in India, Nepal’s primary source of imports.”

“In Pakistan, the accelerated decline in food and nonfood prices for the first 11 months of FY2025 revised the inflation forecast for FY2025 downward, while the outlook for FY2026 remains unchanged.”

“Sri Lanka’s inflation forecast remains unchanged for 2025 and 2026, as recent trends—such as rising food prices and electricity tariff hikes—align with earlier expectations, though risks from credit growth and geopolitical tensions persist. Bhutan’s inflation outlook is also unchanged, reflecting stable price trends,” the report further added.

Business