The Asian Development Bank (ADB) is advising India to resist retaliatory measures in the face of rising global trade tensions, particularly those stemming from the United States. Instead, the ADB recommends focusing on enhancing its domestic competitiveness, diversifying its export markets, and boosting investment through continued reforms.

According to ADB chief economist Albert Park, the imposition of tariffs by the U.S. poses the most significant short-term risk to economic growth in Asia. In light of this, Park suggests that India should prioritize strengthening its economic fundamentals to mitigate the potential adverse effects. This includes streamlining regulations, improving infrastructure, and fostering innovation to enhance productivity and attract foreign investment.

The ADB's recommendations come at a time when global trade relations are increasingly uncertain. The rise of protectionist policies and trade disputes could disrupt supply chains and hinder economic growth, especially for export-oriented economies like India. By focusing on domestic reforms and competitiveness, India can better insulate itself from these external shocks and maintain its growth trajectory.

Specifically, the ADB suggests that India should focus on the following key areas:

• Boosting competitiveness: This involves reducing the cost of doing business, improving infrastructure, and promoting innovation. NITI Aayog, in collaboration with the Institute for Competitiveness (IFC), released a report that identifies key challenges and suggests systemic reforms to enhance the competitiveness of MSMEs in India.
• Diversifying exports: India should explore new markets and reduce its reliance on any single trading partner.
• Attracting investment: Continued reforms, including those related to the Goods and Services Tax (GST), can help to boost both domestic and foreign investment.
• RBI Rate Cuts: The ADB chief economist Albert Park also noted that the Reserve Bank of India (RBI) has the capacity to implement rate cuts, potentially later in the year.

The ADB's advice aligns with the broader consensus among economists that India needs to focus on long-term structural reforms to achieve sustainable and inclusive growth. This includes investing in human capital, improving governance, and promoting environmental sustainability.

While India experienced strong GDP growth in the first quarter of FY26 at 7.8%, driven by increased consumption and government spending, the ADB has tempered its growth forecast for the year to 6.5% due to the anticipated impact of US tariffs on Indian exports. The ADB also lowered its growth outlook for developing Asia. The forecast for 2025 is 4.8%, a decrease from the April projection of 4.9%, and the 2026 forecast is 4.5%, down from 4.7%.

Furthermore, the ADB expects India's current account deficit to increase from 0.6% of GDP in FY25, remaining moderate at 0.9% in the current fiscal year and 1.1% in FY27. This projection considers muted import growth due to lower petroleum imports resulting from decreased Brent crude prices. While service exports and remittances are expected to show robust growth, overall exports are predicted to be lower. Additionally, net capital inflows are likely to decrease in both fiscal years because of global economic uncertainties, potentially leading to a drawdown of international reserves, which are expected to remain strong.

By embracing these reforms and focusing on its underlying strengths, India can navigate the current global economic challenges and achieve its long-term growth potential.