The Asian Development Bank (ADB) on Wednesday said India’s growth rate will accelerate from the September quarter onwards with improvement in agriculture and the ramping up of government spending, while retaining its Gross Domestic Product (GDP) growth projection for FY25 at 7 per cent. The Organisation for Economic Co-operation and Development (OECD), meanwhile, 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 said India’s growth prospects remain robust. “While GDP growth slowed to 6.7 per cent year-on-year (Y-o-Y) in the first quarter (Q1) of FY25, it is expected to accelerate in the coming quarters with improvement in agriculture and a largely robust outlook for industry and services. Exports in FY25 will be higher than earlier projected, led by larger services exports, particularly in IT and professional services,” it added.
The Indian economy grew 8.2 per cent in the preceding financial year 2023-24. The Reserve Bank of India (RBI) projects growth to be 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,” ADB country director for India, Mio Oka, said.
ADB said private consumption is expected to improve, driven by rural consumption fuelled by stronger agriculture and by already robust urban consumption. “The outlook for private investment is upbeat, but growth in public capital expenditure, heretofore high, will moderate in FY25,” it added.
The report flagged the “failure” of the government to meet its capital expenditure target in FY25 as a downside risk. “To achieve the planned capital expenditure target, central government capital spending needs to grow by 39 per cent Y-o-Y in the remaining nine months, which may be difficult,” the report said.
Highlighting the 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 said that in the first half of 2024, India’s GDP expanded to 7 per cent, due in part to a surge in government spending and private consumption. The OECD report noted that domestic demand has buoyed activity in India while projecting solid domestic demand growth to continue in India and Indonesia over the next two years.
The ADB report noted that the services PMI in India remained strong, driven by higher demand for services such as travel and recreation and supported by solid economic growth and easing inflation.
The report revised India’s inflation projection by 0.1 percentage points to 4.7 per cent in FY25, to accommodate higher-than-expected food inflation due to adverse weather conditions. For FY26, the report has maintained its inflation forecast at 4.5 per cent.
The ADO said that India’s balance-of-payments position will remain robust, especially if foreign direct investment inflows continue to recover and foreign portfolio inflows remain strong.
The OECD, in its 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 policy in many economies helping underpin demand. However, it cautioned that persisting geopolitical and trade tensions could increasingly damage 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,” it added.
First Published: Sep 25 2024 | 7:27 PM IST
