India’s economy is proving harder to knock off course, with the Asian Development Bank raising its 2026 growth forecast to 7% as resilient consumers, investment and government spending cushion the country from a volatile global backdrop.
But the same outlook carries a warning: a strengthening El Nino, coupled with elevated energy prices, could turn into a fresh inflation shock for an economy where food prices have an outsized influence on household budgets.
That could force the Reserve Bank of India to keep monetary policy tighter even as growth remains strong.
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The upgrade, ADB said, reflects a broad-based domestic recovery. Private consumption has stayed firm, gross fixed capital formation is holding up and public infrastructure spending is accelerating. Services activity and a revival in private capital expenditure are adding to the momentum, helping India remain the fastest-growing major economy in the region.
For now, that domestic strength is providing a buffer against weaker global demand and geopolitical disruptions. But weather has emerged as a more immediate threat to the growth-inflation balance, with a poor monsoon potentially hitting farm output, rural incomes and food prices at the same time.
“A very strong El Nino event, combined with elevated energy prices, poses a dual supply shock to developing Asia—reducing agricultural yields, constraining hydropower output, and elevating price pressures across South Asia,” the ADB said in its Asian Development Outlook.
The weather risk is already showing up
India’s monsoon is running 15% below the long-term average, raising concerns over Kharif crops including rice, sugarcane and corn. A weaker harvest could add to food-price pressures and squeeze household budgets, while lower hydropower generation could compound the energy shock.
That risk is already showing up in inflation. Retail inflation rose to 4.8% in August, its third straight month above the Reserve Bank of India’s 4% target, with higher food prices driving the increase.
The pressure could be particularly acute across South Asia, where food carries a large weight in consumer price indices. The ADB expects India’s retail inflation to average 5.2% in 2026, leaving policymakers with less room to absorb another surge in food and energy prices.
Growth forecasts are moving in the same direction
The ADB upgrade is part of a broader shift in expectations for India. S&P Global Ratings has raised its FY27 real GDP growth forecast to 7% from 6.6%, pointing to stronger-than-expected June-quarter growth, robust industrial activity, healthy consumption, strong goods exports and accelerating government investment.
Also Read: The mood, as per Moody's: Shocks keep coming, India keeps growing
S&P also expects the Reserve Bank of India to raise its policy rate by 25 basis points this fiscal year as persistent inflation, weather risks and the West Asia conflict add to price pressures.
| Institution | FY27 / 2026 growth forecast | Previous forecast | Key drivers / view |
|---|---|---|---|
| ADB | 7.0% | 6.6% | Strong domestic demand, investment, public infrastructure spending and resilient services |
| S&P Global Ratings | 7.0% | 6.6% | Strong June-quarter growth, industrial activity, consumption, goods exports and government investment |
| Moody’s Ratings | 7.0% | 6.0% | Private consumption, fixed investment, public infrastructure, private investment and resilient services |
| Fitch Ratings | 6.9% | 6.4% | Strong June-quarter growth and resilience to external shocks; warns of weaker momentum from monsoon, inflation and slowing activity |
| World Economic Forum | 6.7% | — | Resilient domestic demand; strongest growth outlook among economies covered |
| Jefferies | 6.5–7.0% | — | Resilient growth; expects corporate earnings growth to rise to 17% next fiscal from 14% |
Moody’s Ratings has raised its FY27 growth forecast to 7% from 6%, citing private consumption, gross fixed capital formation, public infrastructure spending, a revival in private investment and resilient services.
Fitch Ratings has also raised its growth forecast for India’s current fiscal year to 6.9% from 6.4%, citing stronger-than-expected expansion in the June quarter and the economy’s resilience despite external shocks.
However, Fitch expects growth momentum to moderate through the rest of the fiscal year as below-normal monsoon rainfall, elevated inflation and signs of slowing manufacturing and services activity weigh on the economy. It also expects the Reserve Bank of India to raise its policy rate by 25 basis points in October.
The World Economic Forum has similarly identified India as having the strongest growth outlook among the economies covered in its latest survey, while Jefferies sees real GDP growth of 6.5-7% in the current fiscal year and expects corporate earnings growth to accelerate to 17% next fiscal from 14%.
Taken together, the forecasts point to continued strength in India’s domestic economy even as weather, inflation and external shocks threaten to temper momentum. The key risk is whether higher food and energy prices begin to weigh on the consumption strength that has helped keep growth resilient.
