Asian Development Bank Expects Faster India GDP Growth

Starting from Q2 Wednesday Asian Development Bank said that it expects Indian growth to increase from the quarter period July-September quarter, mainly backed by higher agriculture and government expenditure. Asian Development Bank maintains FY25 GDP growth forecast at 7 percent.

For instance, the Organization for Economic Co-operation and Development has hiked up its growth forecast for India to 10 basis points to 6.7 percent for FY25. The ADB underlined India’s robust growth potential in its latest bi-annual report, the Asian Development Outlook.

The ADB said even though GDP growth moderated to 6.7 percent year-on-year in the first quarter of FY24, it may pick up subsequently with favorable agricultural conditions and resilient industry and services outlook. With this, exports for FY24 are likely to come in at a much higher number than earlier estimates, mainly on account of increased services exports, especially in the information technology and professional service areas.

India’s economy had picked up by 8.2 percent during the last fiscal year (FY24), and this growth rate was expected to fall to 7.2 percent in the current fiscal, according to Reserve Bank of India. Mio Oka, ADB country director for India, said, “India’s economy has shown marvelous resilience in the face of global geopolitical stresses and will continue to be on an upward curve.”.

On the other hand, the ADB has good hope for private consumption rising mainly in rural areas with stronger agricultural performance combined with strong urban demand. However, it noted private investment outlooks are optimistic but growth in capex of the public sector is expected to moderate in FY25. While the ADB does note a downside risk from the failure of the government to achieve its capex target, this will mean a 39 percent increase in central government spending in the next nine months, a challenge monumental enough.

This report also revealed near-term risks on global supply chains and commodity price adjustments due to geopolitical shocks and weather impacts on agricultural output. For India, in the first half of 2024, GDP grew by a record 7 percent due to an increase in government spending and private consumption.

Consequent to this, the ADB revised up India’s FY25 inflation forecast to 4.7 percent, primarily due to food inflation being higher than anticipated on account of adverse weather conditions. The inflation forecast for FY26 remains at 4.5 percent.

The ADB remained optimistic on India’s balance of payments, predicting a rebound in direct investment inflows. Nevertheless, the OECD warned that conditions for ongoing geopolitical tensions could lead to slowing investment and heightened import prices, although labor market cooling might slow growth more sharply than expected.