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The Asian Development Bank (ADB) said on Wednesday that India’s growth rate is set to accelerate from the July-September quarter onwards, with improvements in agriculture and increased government spending, while maintaining its gross domestic product (GDP) growth projection for 2024-25 (FY25) at 7 per cent.
Meanwhile, the Organisation for Economic Co-operation and Development (OECD) raised its growth forecast for India by 10 basis points to 6.7 per cent for FY25.
In its latest biannual Asian Development Outlook (ADO), the multilateral lender highlighted India’s robust growth prospects.
“While GDP growth slowed to 6.7 per cent year-on-year (Y-o-Y) in the first quarter of 2023-24 (FY24), it is expected to accelerate in the coming quarters with improvements in agriculture and a largely robust outlook for industry and services. Exports in FY24 will be higher than earlier projected, led by larger services exports, particularly in information technology and professional services,” the report added.
The Indian economy grew by 8.2 per cent in the previous financial year (FY24). The Reserve Bank of India projects growth of 7.2 per cent for FY25.
“India’s economy has shown remarkable resilience in the face of global geopolitical challenges and is poised for steady growth,” said Mio Oka, ADB country director for India.
ADB expects private consumption to improve, driven by rural consumption supported by stronger agricultural output and already robust urban consumption.
“The outlook for private investment is upbeat, but growth in public capital expenditure (capex), heretofore high, will moderate in FY25,” the report noted.
ADB flagged the government’s “failure” to meet its capex target for FY25 as a downside risk.
“To achieve the planned capex target, central government spending needs to grow by 39 per cent Y-o-Y in the remaining nine months, which may be difficult,” it said.
Highlighting near-term risks to India’s growth, the report said, “Geopolitical shocks may affect global supply chains and commodity prices, while weather shocks may pose risks to agricultural output.”
The report noted that in the first half of 2024, India’s GDP expanded by 7 per cent, partly due to a surge in government spending and private consumption. The OECD’s report highlighted strong domestic demand in India and projected that this demand, along with Indonesia’s, will continue to drive growth over the next two years.
The ADB report also mentioned that India’s services PMI remained strong, driven by higher demand for services such as travel and recreation, supported by solid economic growth and easing inflation.
ADB revised India’s inflation forecast by 0.1 percentage points to 4.7 per cent for FY25, citing higher-than-expected food inflation due to adverse weather conditions. For 2025-26, the inflation forecast remains at 4.5 per cent.
The ADO also said that India’s balance-of-payments position will remain strong, particularly if foreign direct investment inflows continue to recover and foreign portfolio inflows remain robust.
The OECD’s interim report projected global GDP growth to stabilise at 3.2 per cent in 2024 and 2025, with further disinflation, improving real incomes, and less restrictive monetary policies in many economies supporting demand. However, the report warned that persistent geopolitical and trade tensions could increasingly hamper investment and raise import prices.
“Growth could slow more sharply than expected as labour markets cool, and deviations from the expected smooth disinflation path could trigger disruptions in financial markets. On the upside, the recovery in real incomes could provide a stronger boost to consumer confidence and spending, and further oil price declines would hasten disinflation,” the report added.
First Published: Sep 25 2024 | 7:27 PM IS
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