India’s GDP set for a 7% growth in FY25 and 7.2% in FY26: ADB

Gross domestic product (GDP) in India is projected to grow by 7% for the financial year 2024-25 (ending March 31, 2025) and by an additional 7.2% for FY2025-26, according to the latest edition of the Manila-based Asian Development Bank (ADB).

ADB’s Asian Development Outlook (ADO) report for September 2024 projects a favourable outlook for the industrial and services sectors, along with private investment and urban consumption in FY2024-25 and FY2025-26. “Additionally, a new government policy offering employment-linked incentives to workers and firms could increase labour demand and support job creation starting in FY2025.”

As a result of the government's fiscal consolidation efforts, the central government debt is anticipated to decrease from 58.2% of GDP in FY2023-24 to 56.8% in FY2024-25. The general government deficit, which includes state governments, is expected to fall below 8% of GDP in FY2024-25.

The report emphasises that an above-average monsoon across much of India is expected to spur strong agricultural growth, positively influencing the rural economy in FY2024-25. “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,” says Mio Oka, ADB Country Director for India.

The report also predicts India's current account deficit to be 1% of GDP in FY2024-25 and 1.2% in FY2025-26, down from the prior forecast of 1.7% for both years, driven by better exports, reduced imports, and strong remittance inflows.

ADB forecasts consumer inflation to climb to 4.7% in FY2024-25, driven by high food prices, even with a projected rise in agricultural output. This scenario limits the central bank's ability to adopt a more accommodative monetary policy. “If improved agricultural supply leads to moderating food price increases, the central bank may begin lowering policy rates in FY2024-25, enhancing prospects for credit expansion.”

ADB says short-term growth risks encompass geopolitical shocks that could disrupt global supply chains and commodity prices, along with weather-related threats to agricultural production. This outlook hinges on the central government successfully meeting its capital expenditure targets in FY2024-25.

An increase in foreign direct investment could counter these risks by driving growth and boosting investment, particularly in the manufacturing sector. Additionally, enhancements in agricultural supply may lead to lower food prices, potentially reducing consumer inflation below anticipated levels.