ADB retains India’s GDP growth projection for FY25 at 7%

New Delhi: The Asian Development Bank (ADB) on Wednesday retained its projection on India’s GDP growth for the current financial year at 7% and for 2025-26 at 7.2% and said geopolitical shocks that could disrupt global supply chains and commodity prices pose near-term risks.

“India’s economy has shown remarkable resilience in the face of global geopolitical challenges and is poised for steady growth,” said ADB Country Director for India Mio Oka.

“Agricultural improvements will enhance rural spending, which will complement the effects of robust performance of the industry and services sectors,” Oka added.

In its Asian Development Outlook update for September, the ADB noted that an above-average monsoon in most parts of the country will lead to strong agricultural growth, enhancing the rural economy.

It maintains a positive outlook for the industry and services sectors, private investment, and urban consumption for 2024-25 and 2025-26. Additionally, a new government policy offering employment-linked incentives to workers and firms could increase labour demand and support job creation starting in the financial year 2025-26, ADB said.

India’s GDP expanded by 8.2% in the financial year ended March 2024. The ADB’s growth projection for the Indian economy for the current financial year is lower than the Reserve Bank of India’s estimate of 7.2%.

According to the Manila-headquartered multilateral agency, near-term growth risks to the Indian economy include geopolitical shocks that could disrupt global supply chains and commodity prices, as well as weather-related risks to agricultural output.

However, these risks may be offset by higher foreign direct investment, which could support growth and investment, particularly in manufacturing. Additionally, improvements in the supply of agricultural products may reduce food prices, potentially lowering consumer inflation below the forecast, ADB noted in the report.

According to the ADB, the central government’s debt as a percentage of GDP is likely to decline to 56.8% in the current financial year from 58.2% in the previous year on the back of the government’s fiscal consolidation efforts.

The general government deficit, which includes state governments, is expected to fall below 8% of GDP in the current financial year.

ADB has pegged retail inflation for the current financial year at 4.7%. It said the food prices are likely to remain elevated despite higher agriculture output expectations.

“This has prevented India’s central bank from adopting a more accommodative monetary policy. If improved agricultural supply leads to moderating food price increases, the central bank may begin lowering policy rates in FY2024 (2024-25), enhancing prospects for credit expansion,” it added.