The Asian Development Bank (ADB) has officially maintained its forecast for India’s GDP growth at 7% for FY25, attributing this projection primarily to a rebound in the agriculture sector, thanks to anticipated above-normal monsoon conditions. This forecast comes just a day after the International Monetary Fund (IMF) revised its own GDP growth projection for India to 7%, up from 6.8% predicted in April. Additionally, the Reserve Bank of India (RBI) also raised its growth estimates to 7.2%, showcasing a growing consensus among major financial institutions regarding India’s economic prospects.

The ADB's report, released on July 17, indicates that the Indian economy is set to grow by 7% in FY2024, which ends on March 31, 2025, and 7.2% in FY2025. This positive outlook aligns with the Asian Development Outlook (ADO) April 2024, reinforcing the expectation of a stable growth trajectory. The Indian economy demonstrated robust performance in the previous fiscal year, logging a remarkable 8.2% growth rate compared to 7% in the prior fiscal year.

Economic Indicators

According to the ADB, several indicators support this optimistic outlook. The services sector has continued to expand vigorously, particularly in the fourth quarter of FY24, with the forward-looking Services PMI remaining significantly above its long-term average. Furthermore, the industrial sector is expected to exhibit robust growth, bolstered by increased manufacturing activities and strong demand for construction, particularly in housing.

The ADB emphasizes that the expected rebound in agriculture is crucial for sustaining growth momentum in rural areas, especially following the muted growth experienced in FY2023. Investment demand remains strong, led by public investments, while bank credit continues to drive robust demand in the housing sector, positively influencing private investment levels.

Despite these encouraging trends, the ADB cautions that export growth will primarily rely on services, with merchandise exports anticipated to show relatively weaker growth. Additionally, the central government's unexpectedly strong fiscal position could provide an additional boost to economic growth. However, this optimistic outlook must be balanced against potential downside risks, including adverse weather events and geopolitical shocks that could affect economic stability.

Inflation Forecast

In terms of inflation, the ADB has retained its forecast at 4.6% for the current financial year, with a slight decline expected to 4.5% in the following fiscal year. This inflationary outlook indicates a relatively stable pricing environment, which is critical for sustainable economic growth.

Regional Context

Looking at the broader picture for the Asia region, the ADB has adjusted its growth forecast upward to 5% for 2024, while maintaining it at 4.9% for 2025. The region's growth projections remain largely unchanged since the ADO April 2024, attributed to resilient domestic demand coupled with improved exports and manufacturing activities. The marginal adjustment of 0.1 percentage points in the growth forecast for 2024 is mainly due to upward revisions in the Caucasus and Central Asia along with East Asia.

Furthermore, the inflation forecast for developing Asia has fallen to 2.9% in 2024, primarily driven by downward revisions in China and the Caucasus and Central Asia, which offset a slight increase in South Asia.

Conclusion

In summary, the Asian Development Bank’s decision to maintain India's GDP growth forecast at 7% for FY25 underscores a positive economic outlook supported by strong agricultural performance and robust investment demand. As India navigates through various challenges, the insights from the ADB provide a crucial perspective on the country’s economic trajectory, emphasizing the importance of sustained growth in key sectors and the potential impacts of external factors. With the RBI and IMF aligning their forecasts with the ADB, the consensus suggests a promising path ahead for the Indian economy in the coming fiscal years.

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