The Asian Development Bank (ADB) on Thursday retained India’s GDP growth projections at 7% for FY25.
A day before, S&P Global ratings too maintained India’s growth forecast at 6.8% for the ongoing financial year.
The report by ADB highlighted that an above-average monsoon in most parts of the country will lead to strong agricultural growth, enhancing the rural economy in FY25. It maintains a positive outlook for the industry and services sectors, private investment, and urban consumption for FY25 and FY26.
“Additionally, a new government policy offering employment-linked incentives to workers and firms could increase labor demand and support job creation starting in FY26,” said Asian Development Bank in a statement.
ADB’s Country Director for India, Mio Oka, remarked, “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.”
According to the ADO report, favorable conditions for agriculture, with an above-average monsoon boosting rural economic activity in FY25. Positive performance is expected across industries and services, with urban consumption and private investments projected to remain robust over the next two years. A new government initiative offering employment-linked incentives may further drive labor demand and job creation.
The government’s fiscal consolidation efforts are projected to reduce central government debt from 58.2% of GDP in FY24 to 56.8% in FY25. The general government deficit is expected to fall below 8% of GDP in FY25, further contributing to macroeconomic stability.
Inflation and Monetary Policy
ADB said that the consumer inflation is expected to rise to 4.7% in FY24, primarily due to elevated food prices. Despite higher agricultural output, this inflationary pressure has constrained the Reserve Bank of India from adopting a more accommodative monetary policy. However, if food price increases moderate due to improved supply, the central bank could consider lowering policy rates later in FY2024, potentially boosting credit expansion.
India’s current account deficit is forecast to shrink to 1.0% of GDP in FY2024, down from an earlier estimate of 1.7%, thanks to better export performance, reduced imports, and strong remittance inflows, the report indicated.
Earlier this month, World Bank upgraded India’s GDP growth forecast to 7% from its earlier projection of 6.6%. On the similar lines, International Monetary Fund also revised the projection upwards from 6.8% to 7%.
