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ADB Lowers India’s FY26 Growth Forecast to 6.5% Amid US Tariffs, Global Slowdown & Migrant Worker Crisis

- Dr.SanjayKumar Pawar

Introduction
Why the ADB Lowered Its Growth Forecast
The Impact of US Tariffs and Policy Uncertainty
Global Growth Slowdown: How It Affects India
Sectoral Outlook: Services, Agriculture, and Manufacturing
India’s Fiscal Position and Inflation Trends
Implications for Trade, Investment, and Employment
West Bengal Migrant Worker Crisis: A Case Study on Economic Vulnerability
What Can Policymakers Do?
Expert Opinions and Insights
Conclusion
FAQs

1. Introduction

On July 24, 2025, the Asian Development Bank (ADB) revised its forecast for India’s FY26 economic growth to 6.5%, down from its earlier 6.7% projection in April 2025. While a 0.2% downgrade may appear minor, it signals a meaningful shift in India’s economic outlook, especially as the nation battles a volatile global trade environment, US-imposed baseline tariffs, and a slowing world economy.

This revision comes at a critical time. India, poised as one of the world’s fastest-growing economies, now faces tariff-driven export challenges, cooling global demand, and disruptions to foreign investment flows. These factors not only influence GDP numbers but also affect millions of livelihoods, from urban industrial workers to migrant laborers in vulnerable regions like West Bengal’s Malda district.

In this blog, we break down why the ADB lowered its forecast, explore the economic, trade, and policy implications, and analyze how these shifts could impact key sectors like agriculture, services, and manufacturing. We’ll also examine real-world human stories, such as the Amir Sheikh detention case, which highlights how macroeconomic headwinds often hit the most vulnerable first.

India’s path to resilience will depend on policy action, trade diversification, and protecting its workforce.

2. Why the ADB Lowered Its Growth Forecast

On July 24, 2025, the Asian Development Bank (ADB) revised India’s FY26 growth forecast to 6.5%, down from 6.7% projected in April 2025. While a 0.2 percentage point dip may seem minor, it represents a potential $8–10 billion loss in nominal GDP, which could slow job creation, tax revenues, and public spending.

According to the ADB’s official report, this downgrade is driven by three interconnected factors:

1. US Baseline Tariffs

Newly imposed US tariffs—up to 26% on Indian goods like textiles, auto parts, and steel—are squeezing exporters.
Ongoing uncertainty in trade negotiations further discourages businesses from making long-term investments.
Sectors like manufacturing and agriculture are the hardest hit, as they rely heavily on export markets.

2. Lower Global Growth

The IMF projects global GDP to slow to 2.8% in 2025, down from 3.1% in 2024.
Sluggish demand in the US and EU translates into weaker demand for Indian IT services, pharmaceuticals, and industrial products, curbing export revenues.(IMF World Economic Outlook).

3. Investment Flow Disruptions

Trade tensions are causing foreign direct investment (FDI) to taper, particularly in export-driven industries and infrastructure.
Reduced capital inflow affects India’s ability to expand manufacturing capacity and create jobs.

These combined headwinds threaten to tighten India’s fiscal space and risk employment, particularly for migrant laborers from West Bengal, Bihar, and Uttar Pradesh, who rely on export-driven industries.

India’s challenge now is to diversify trade partners, attract resilient investment, and boost domestic consumption to offset these global pressures.

3. The Impact of US Tariffs and Policy Uncertainty

The United States has recently announced reciprocal tariffs of up to 26% on Indian exports, targeting key sectors such as textiles, automotive components, and agricultural products. With an August 1 deadline for compliance, these tariffs have created significant volatility in Indian financial markets and increased uncertainty for exporters. Trade talks between India and the US remain unresolved, leaving businesses on edge.

According to US Commerce Secretary Howard Lutnick, these tariffs will automatically take effect unless a trade agreement is finalized. While Indian negotiators are seeking exemptions for critical sectors, they face resistance, especially on issues of agricultural market access, including dairy and cereals—longstanding points of contention in bilateral trade relations.

Why This Matters for India

The United States is India’s largest export destination, accounting for 18% of India’s total exports (Commerce Ministry, GoI). If tariffs remain, Indian exporters could lose a substantial share of this market, impacting both revenues and competitiveness.

The risks go beyond exports:

Export Slowdown: Higher costs will make Indian goods less competitive, affecting trade balances.
Job Losses: Labor-heavy industries like textiles may lose up to 150,000 jobs in FY26, adding to unemployment challenges.
Currency Volatility: Analysts warn the rupee could weaken to ₹85–₹87 per USD under a worst-case scenario, raising import costs for oil and raw materials.

For students and businesses alike, this episode highlights how tariffs and policy uncertainty can disrupt economies, impacting jobs, currency stability, and trade flows. It underscores the importance of resilient trade strategies and diversifying export markets as India navigates global economic challenges.

4. Global Growth Slowdown: How It Affects India

The Asian Development Bank (ADB) has revised its growth projections, highlighting broader global economic headwinds that could impact India. While India’s economy shows resilience, several external factors threaten exports, trade balances, and currency stability.

Key Global Challenges Affecting India

China’s Slowing Recovery
- China’s GDP growth is projected to drop to 4.5% in 2025, slowing regional demand.
- Weak Chinese imports disrupt Asian supply chains, affecting India’s metals, electronics, and manufacturing exports.
- Reduced Chinese investment in Asia also impacts capital flows into emerging markets like India.
European Union Stagnation
- The EU faces economic stagnation due to energy shocks and structural slowdown.
- This reduces demand for Indian pharmaceuticals and IT services, two key sectors relying on Europe as a major market.
- Lower EU consumption may also hurt India’s gems, textiles, and engineering goods exports.
Geopolitical Tensions and Supply Chain Risks
- Ongoing tensions in West Asia (Middle East) disrupt global supply chains.
- Rising commodity prices, especially crude oil, increase India’s import bill, raising risks of inflation and a weaker rupee.

Why India Remains Resilient

Strong Domestic Consumption
- India’s internal demand acts as a cushion against global turbulence.
- The India Meteorological Department (IMD) projects an above-normal monsoon, boosting farm output and rural consumption.
Government Support for Rural Growth
- Higher government spending on rural welfare and infrastructure is creating jobs and stimulating demand in small towns and villages.
- This helps offset export-driven slowdowns, keeping economic momentum intact.

What This Means for India

Short-Term Challenges
- Exports may decline, and the rupee could face pressure, raising import costs.
- Sectors reliant on Europe and China could see slower growth and profit pressures.
Long-Term Outlook
- With strong domestic demand and policy-driven rural revival, India is positioned to weather global volatility.
- Diversifying export markets and boosting energy self-reliance can further reduce risks.

5. Sectoral Outlook: Services, Agriculture, and Manufacturing

India’s economic growth remains uneven across sectors as global challenges, tariffs, and shifting demand patterns shape performance. Here’s a detailed look at the sectoral outlook for Services, Agriculture, and Manufacturing in FY26.

1. Services Sector: The Growth Driver

The IT and Business Process Outsourcing (BPO) industry continues to grow at a robust 8–9% annually, even amid global economic headwinds.
The digital services export market, valued at $180 billion, remains resilient due to rising global demand for AI-driven solutions, cloud computing, and automation tools.
Strong demand from the US and European markets helps sustain momentum, despite slower economic growth in these regions.
The sector continues to attract foreign investments and high-skilled employment, making it a key contributor to India’s GDP.

2. Agriculture Sector: Stability Amid Global Uncertainty

Favorable conditions, including above-average rainfall, are expected to drive 4% agricultural growth in FY26 (IMD forecast).
Higher farm output will help control food inflation and boost rural consumption, acting as a buffer against export-related slowdowns.
Government procurement policies and export incentives for crops and allied products further support income stability for farmers.
Strong rural demand also benefits allied industries like fertilizers, farm equipment, and FMCG.

3. Manufacturing Sector: Under Pressure but Supported by Policy

Manufacturing faces the greatest challenges due to global tariffs, particularly on textiles, automotive components, and steel, which are major export categories.
US tariffs of up to 26% threaten competitiveness in key markets, potentially slowing factory output.
However, the PLI (Production-Linked Incentive) scheme is attracting domestic and foreign investments, aimed at boosting electronics, renewable energy, and automotive manufacturing.
Policy incentives and local demand could partially offset export-driven weaknesses in the sector.

While manufacturing struggles with tariffs and external shocks, services and agriculture remain robust pillars of India’s economy. Continued government support, domestic consumption, and targeted policy schemes will be crucial to sustaining growth across all three sectors in FY26.

6. India’s Fiscal Position and Inflation Trends

Despite global economic pressures and trade challenges, India’s fiscal position remains stable in FY26, backed by strong revenues and controlled inflation. Here’s a breakdown of the key factors shaping the country’s fiscal outlook and price stability.

1. Fiscal Deficit on Track

The Finance Ministry projects a fiscal deficit of 5.1% of GDP for FY26, aligning with the government’s consolidation path.
This stable deficit target reflects prudent spending and healthy tax collections, even amid external uncertainties like tariffs and global slowdown.
Continued fiscal discipline supports investor confidence and sovereign ratings, helping attract foreign capital.

2. RBI Dividends Boost Revenues

The Reserve Bank of India (RBI) has announced higher-than-expected dividends of ₹2.1 trillion to the government.
These dividends provide additional fiscal space for public spending on infrastructure, rural development, and welfare schemes without widening the deficit.
Enhanced revenues also help offset potential losses from weaker export growth caused by global headwinds.

3. Inflation Trends: Cooling Prices

Consumer price inflation is projected at 3.8% for FY26, down from 4.3% in FY25, signaling improving price stability.
The drop is supported by falling food prices, improved supply chains, and stable commodity markets.
Lower inflation benefits household consumption, borrowing costs, and overall economic growth, while giving the RBI room to maintain a supportive monetary policy stance.

With a stable fiscal deficit, strong RBI dividends, and easing inflation, India remains fiscally resilient despite external economic pressures. These trends enhance the government’s ability to fund growth-driven programs while maintaining macroeconomic stability—key for investors, businesses, and policymakers in FY26.

7. Implications for Trade, Investment, and Employment

The Asian Development Bank’s (ADB) downgrade of India’s growth outlook highlights key risks to the country’s trade, foreign investment, and employment landscape. Global headwinds, tariff pressures, and weaker demand are likely to weigh on India’s economic momentum through FY26.

1. Trade Impact: Exports Under Pressure

Indian exports could fall by $12 billion annually under current tariff structures and global slowdown trends.
Key sectors like textiles, automotive components, steel, and pharmaceuticals face declining demand in the US and European Union markets.
Lower export revenues may widen the trade deficit, adding pressure on the rupee and foreign exchange reserves.

2. Investment Impact: FDI May Slow

Foreign Direct Investment (FDI) inflows could decline by 8–10%, especially in export-driven industries hit by global demand contraction.
Sectors like manufacturing, engineering goods, and renewable energy face delays in new projects due to global uncertainty.
Slower FDI growth could affect job creation and technology transfer, reducing competitiveness in global supply chains.

3. Employment Impact: Migrant Workers at Risk

Migrant workers, especially from West Bengal and Bihar, are most vulnerable as export-driven industries scale back hiring.
Labor-intensive sectors like textiles, construction, and logistics could see reduced employment, impacting household incomes.
Slower job creation may dampen rural consumption, a critical buffer for India’s growth.

While India’s domestic demand and rural rebound provide some cushion, trade losses, weaker FDI inflows, and job risks remain major concerns. Policymakers may need to strengthen incentives for domestic manufacturing and diversify export markets to sustain growth.

8. West Bengal Migrant Worker Crisis: A Case Study on Economic Vulnerability

The Malda migrant worker incident, where Amir Sheikh was allegedly detained and pushed across the Bangladesh border, highlights the human cost of India’s economic disruptions. As global trade slows and export-driven industries struggle, migrant workers from West Bengal face mounting hardships.

1. West Bengal’s Migrant Workforce: A Critical Segment

West Bengal contributes nearly 10% of India’s total migrant labor force (Labour Ministry data).
Migrant workers from districts like Malda, Murshidabad, and Nadia often rely on jobs in textiles, construction, and small-scale manufacturing, which are highly export-dependent.
These workers send vital remittances to rural households, sustaining local economies.

2. Job Losses Amplify Economic Stress

With tariffs and a global slowdown hitting exports, labor-intensive sectors like garments and construction are scaling back operations.
Migrant workers are the first to face layoffs, pushing many into informal or unsafe work conditions.
Falling remittances strain rural consumption, deepening the economic slowdown in affected regions.

3. Social and Border Tensions

Cases like Amir Sheikh’s detention and border pushback reveal the social instability tied to rising unemployment.
Border regions face heightened security concerns, as workers seek cross-border opportunities or become entangled in illegal migration routes.
These incidents underline the need for policy intervention and job creation to reduce economic vulnerability.

The West Bengal migrant worker crisis reflects the broader economic and social risks of export-driven job losses. Addressing these challenges through employment schemes, skill development, and targeted support is crucial to protect vulnerable communities.

9. What Can Policymakers Do?

As India faces the dual challenge of US tariffs, slowing exports, and job losses, policymakers must take proactive steps to protect growth, workers, and trade competitiveness. Here’s how India can mitigate risks and sustain economic momentum in FY26.

1. Accelerate Trade Diversification

India must reduce dependency on the US market by expanding exports to ASEAN nations, Africa, and the Middle East, where demand for Indian textiles, agricultural products, and engineering goods is growing.
Bilateral and regional trade agreements can help secure preferential access and reduce tariff barriers in these markets.
Diversified trade routes also make India more resilient to geopolitical risks and protectionist measures in the West.

2. Negotiate Tariff Relief with the US

In ongoing US-India trade talks, negotiators should focus on tariff exemptions for labor-intensive sectors like textiles, apparel, and agriculture, which employ millions.
Securing relief for critical export categories could protect up to 150,000 jobs in FY26 and stabilize export earnings.
Leveraging strategic partnerships and market access discussions can help achieve more favorable terms.

3. Boost Domestic Demand to Absorb Shocks

Expanding programs like PMAY (Pradhan Mantri Awas Yojana) and rural employment schemes (MGNREGA) can generate jobs and absorb workers displaced by export slowdowns.
Strengthened infrastructure and housing investments stimulate demand across sectors, from cement and steel to services.
A focus on rural income growth ensures continued consumption, supporting GDP growth even when exports falter.

4. Strengthen Worker Protections

Enhanced interstate migrant worker welfare schemes can prevent social and economic crises, as seen in the Malda migrant worker case.
Measures should include portable benefits, skill development, and better grievance redressal systems to safeguard vulnerable workers.
Stronger safety nets reduce social tensions and economic distress during trade shocks.

By diversifying trade, securing tariff relief, stimulating domestic demand, and protecting workers, India can withstand global headwinds while safeguarding growth and livelihoods. A balanced approach will be critical for economic stability in FY26 and beyond.

10. Expert Opinions and Insights

Amid rising US tariffs, global slowdown, and job losses, experts highlight strategies to help India sustain growth while navigating external shocks.

1. Dr. Raghuram Rajan: Strengthen Domestic Demand

Former RBI Governor Dr. Raghuram Rajan emphasizes the need to build economic resilience by boosting domestic consumption.
According to Rajan, “India must reduce overdependence on exports by strengthening internal demand and diversifying trade partners,” ensuring stability even if global markets weaken.
Policies supporting rural incomes, infrastructure investments, and housing can serve as key growth drivers.

2. World Bank (2025): Structural Reforms as Shock Absorbers

The World Bank’s 2025 report states that India’s ongoing structural reforms could offset up to 50% of tariff-driven export losses by 2027.
Key reforms include:
- Production-Linked Incentive (PLI) schemes to boost manufacturing.
- Expansion of the digital economy, enabling IT and e-commerce exports.
These measures enhance competitiveness and job creation, cushioning the economy from trade disruptions.

Experts agree that a dual strategy—strengthening domestic demand while accelerating structural reforms—can help India navigate tariff and global slowdown risks, ensuring long-term economic stability.

11. Conclusion

The Asian Development Bank’s (ADB) downward revision of India’s FY26 growth forecast reflects the impact of global economic headwinds, including US tariffs, slowing exports, and weaker global demand. These challenges pose risks to India’s trade, employment, and foreign investment, particularly affecting labor-intensive sectors like textiles and the livelihoods of migrant workers from states such as West Bengal and Bihar.

Despite these hurdles, India’s economic fundamentals remain resilient. Strong domestic demand, supported by rural consumption, housing programs, and government spending, continues to drive growth. The agricultural sector, bolstered by an above-normal monsoon and procurement incentives, helps keep inflation under control while supporting rural incomes. Meanwhile, fiscal discipline—with the deficit target of 5.1% of GDP on track and robust RBI dividend transfers—provides policymakers with the space to respond to external shocks.

However, to sustain momentum, urgent policy action is essential. Diversifying exports beyond the US, securing tariff relief for vulnerable sectors, boosting employment programs, and strengthening migrant worker welfare schemes will be critical for stability.

With proactive trade and labor strategies, India can navigate global uncertainties and maintain its position as one of the world’s fastest-growing major economies.

12. FAQs

1. Why did the ADB lower India’s FY26 growth forecast?
Due to US baseline tariffs, global growth slowdown, and reduced investment flows.

2. How will tariffs impact India’s economy?
Tariffs may reduce exports by $12 billion annually and affect up to 150,000 jobs in export sectors.

3. Which sectors will be most affected?
Textiles, automotive components, and steel face the greatest risks, while services and agriculture remain resilient.

4. What is the government doing to offset these challenges?
The government is pursuing trade diversification, rural demand boosts, and fiscal support.

5. How does the Malda migrant worker case relate to the economic slowdown?
It highlights how vulnerable migrant workers bear the brunt of economic disruptions, requiring stronger protections.

Sources:

Friday, July 25, 2025

ADB Lowers India’s FY26 Growth Forecast to 6.5% Amid US Tariffs, Global Slowdown & Migrant Worker Crisis

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