ADB retains FY25 growth forecast for India’s economy at 7%

The Asian Development Bank (ADB) said on Wednesday it expects India's economy to grow at 7% in FY25 and 7.2% FY26, retaining its growth forecasts from April.

These projections are a part of ADB's 'Asian Development Outlook (ADO) September 2024', in which it raised its FY25 growth forecast for the developing Asia and Pacific regions to 5%, from its April forecast of 4.9%. It also said it expected the region to grow at 4.9% in FY26. "Inflation in developing Asia and the Pacific is expected to ease further to 2.8% in 2024, compared with a previous forecast of 3.2%," ADB added.

ADB's latest forecast comes a day after Moody's revised its calendar year (CY) 2024 growth forecast for India to 7.1%, from an estimate of 6.8% in June as it expects growth in the Asia-Pacific region to outpace the global economy.

“India’s economy has shown remarkable resilience in the face of global geopolitical challenges and is poised for steady growth,” said Mio Oka, ADB’s country director for India. “Agricultural improvements will enhance rural spending, which will complement the effects of robust performance of the industry and services sectors," Oka added.

Also read | Data haze: Here’s why India needs its own version of the Keqiang index

In its Asian Development Outlook for September 2024, ADB said an above-average monsoon in most parts of India would lead to strong agricultural growth, enhancing the rural economy in FY25. It maintained a positive outlook for the industry, as well as the services sector, private investment, and urban consumption for FY25 and FY26.

Additionally, a new government policy offering employment-linked incentives to workers and companies could increase labour demand and support job creation starting FY26, ADB said.

"With the government’s fiscal consolidation efforts, central government debt is projected to decrease from 58.2% of GDP in [FY24] to 56.8% in [FY25]. The general government deficit, which includes state governments, is expected to fall below 8% of GDP in [FY25]," it added.

Food expected to drive inflation higher

Meanwhile, ADB expects India's consumer inflation to rise to 4.7% in FY25 because of elevated food prices, despite expectations of higher agricultural output, and thus prevent the Reserve Bank of India (RBI) from adopting a more accommodative monetary policy.

"If improved agricultural supply leads to moderating food price increases, the central bank may begin lowering policy rates in [FY25], enhancing prospects for credit expansion. India’s current account deficit is forecast to be 1% of GDP in [FY25] and 1.2% in [FY26], down from the previous forecast of 1.7% for both years, due to better exports, lower imports, and strong remittance inflows," it said.

Also read | Food or Fed: What will RBI choose in October?

"Near-term growth risks include geopolitical shocks that could disrupt global supply chains and commodity prices, as well as weather-related risks to agricultural output. The outlook is based on the central government achieving its capital expenditure target in [FY25]," it added.

The RBI has kept the repo rate—the interest rate at which it lends money to commercial banks and financial institutions—unchanged at 6.5% since February 2023.

India's retail inflation inched up to 3.65% in August from 3.6% in June, chiefly because of stubborn food prices. Inflation has, however, stayed within 2 percentage points of the Reserve Bank of India’s medium-term target of 4%.

Also read | In charts: GDP growth disappoints in April-June, but “not a cause for alarm”

"These (geopolitical) risks may be offset by higher foreign direct investment, which could support growth and investment, particularly in manufacturing," ADB said. "Additionally, improvements in the supply of agricultural products may reduce food prices, potentially lowering consumer inflation below the forecast," it added.

Note: ADB refers to the financial year ending 31 March 2025 as FY24, which is called FY25 in India. All the dates above reflect the Indian system.