ADB pegs India’s GDP growth at 7% in 2024-25, 7.2% next year

NEW DELHI : The Asian Development Bank (ADB) on Thursday revised India’s gross domestic product (GDP) growth forecast for FY25 to 7%, up from its earlier forecast of 6.7%. The bank cited robust public and private investments and a strong services sector for revising its growth estimate upwards.

The Philippines-headquartered regional development bank also expects India to grow at 7.2% in FY26.

The forecast–part of the latest edition of ADB’s flagship economic publication, Asian Development Outlook (ADO) April 2024–states that the triggers for growth will come from higher capital expenditure on infrastructure development, by both the central and state governments, the rise in private corporate investment, strong services sector performance, and improved consumer confidence.

During FY26, ADB expects India’s growth momentum to pick up on the back of improved goods exports, and an increase in manufacturing productivity and agricultural output.

“Notwithstanding global headwinds, India remains the fastest growing major economy on the strength of its strong domestic demand and supportive policies,” said Mio Oka, ADB’s Country Director for India.

“The Government of India’s efforts to boost infrastructure development while undertaking fiscal consolidation and provide an enabling business environment will help in increased manufacturing competitiveness to augment exports and drive future growth,” Oka added.

The regional development bank also expects India’s current account deficit to widen moderately to 1.7% of GDP on rising imports to meet domestic demand.

Further, foreign direct investment will be affected in the near term due to tight global financial conditions, but will pick up in FY25 with higher industry and infrastructure investment, ADB stated in its report”.

Goods exports will also be affected by lower growth in advanced economies but pick up in FY26 as global growth improves, it added.

However, ADB has warned that unanticipated global shocks such as supply line disruptions to crude oil markets and weather shocks impacting agricultural output are key risks to India’s economic outlook.

But as things stand, India remains the fastest-growing major economy in the world.

During the December quarter (October-December 2023), the Indian economy soared ahead with a surprise growth of 8.4%, belying fears of a slowdown as manufacturing, electricity and construction continued to fire on all cylinders.

The high growth number in the third quarter (Q3FY24) has also meant a revision by India’s National Statistical Office in the GDP growth estimate for FY24 to 7.6% in its recently released second revised estimate, from 7.3% growth it had estimated in the first advance forecast.

The Reserve Bank of India’s (RBI) economic growth estimate for FY24 is 7%, while the International Monetary Fund has pegged GDP growth for FY24 at 6.7%.

Others have also raised their forecast for India’s GDP growth in FY24. For instance, ratings agency Moody’s has revised it to 8%, from 6.6% earlier, citing strong government expenditure and domestic consumption. Last month, another ratings agency Fitch Ratings had raised India’s growth forecast for FY25 to 7% from 6.5% estimated earlier, projecting investment to be a significant driver of growth.

Meanwhile, ADB expects developing economies in Asia and the Pacific to expand by 4.9% on average this year (FY25) as the region continues its resilient growth amid robust domestic demand, improving semiconductor exports, and recovering tourism.

Growth will continue at the same rate next year, while inflation is expected to moderate after being pushed up by higher food prices in many economies over the past two years, ADB wrote in its report.

“India is expected to remain a major growth engine in Asia and the Pacific, with a 7.0% expansion this year (FY25) and 7.2% (FY26) next year. The PRC’s (China) growth is forecast to slow to 4.8% this year and 4.5% next year, from 5.2% last year,” it added.