ADB retains India's economic growth forecast at 7% for FY24, 7.2% for FY25

The Asian Development Bank (ADB) projects sustained strong growth for India’s economy, forecasting a 7 per cent increase in gross domestic product (GDP) for the financial year 2024 (ending 31 March 2025) and 7.2 per cent for FY2025. The projections were outlined in the bank’s Asian Development Outlook report for September 2024.

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

Photo; ADB

The report indicates that above-average monsoon across much of India is expected to stimulate strong agricultural growth, positively impacting the rural economy in FY2024. The ADB maintains a positive outlook for the industrial and services sectors, along with private investments and urban consumption for both FY2024 and FY2025. Furthermore, a new government initiative providing employment-linked incentives for workers and companies could boost labour demand and facilitate job creation starting in FY2025, the bank said.

Debt reduction amid inflation concerns

Due to the government’s efforts toward fiscal consolidation, central government debt is projected to decline from 58.2 per cent of GDP in FY2023 to 56.8 per cent in FY2024. “The general government deficit, which includes state governments, is expected to fall below 8 per cent of GDP in FY2024,” the report mentioned.

Consumer inflation is expected to rise to 4.7 per cent in FY2024, driven by high food prices, despite the anticipated increase in agricultural output. This situation has limited the central bank’s ability to implement a more lenient monetary policy. However, if improvements in agricultural supply lead to a decrease in food prices, the central bank may consider lowering policy rates in FY2024, which could foster credit expansion.

Current account deficit projections improve

“India’s current account deficit is forecast to be 1 per cent of GDP in FY2024 and 1.2 per cent in FY2025, down from the previous forecast of 1.7 per cent for both years, due to better exports, lower imports, and strong remittance inflows,” the report said.

Potential near-term growth risks include geopolitical tensions that could disrupt global supply chains and affect commodity prices, as well as weather-related challenges impacting agricultural production. The outlook assumes that the central government will meet its capital expenditure goals in FY2024, the report said.

These risks could be mitigated by increased foreign direct investment, which may bolster growth and investment, particularly in the manufacturing sector. “Additionally, improvements in the supply of agricultural products may reduce food prices, potentially lowering consumer inflation below the forecast,” the report said.