ADB predicts 7% GDP growth for India in 2024-25

Context

The Asian Development Bank predicts that India’s economy will grow at a rate of 7% in the fiscal year 2024-25, slightly lower than the previous year’s 7.6%. Despite this slight slowdown, the ADB remains optimistic about India’s economic outlook.

Key Points

• The Asian Development Bank reported that India’s GDP growth is projected to achieve 7.2% in 2025-26 which reflects a long-term high in the medium-term.
• Based on this forecast, the retail inflation is expected to be 4.6% this year and further go down to 4.5% 2025-26.
• The report states that food inflation in India might eventually go down to 5.7% which is the output average of crops turning normal.
• Globally, the U.S. inflation and higher interest rates may alter the inflationary future of Asia while it will be more complicated for the Indian Economy due to its sensitivity to exchange rate changes and the reliance on imports.
• Agricultural labour forces keep on getting paid on time during months of good rainfall, which lifts personal consumption and economic activity, opening chances for the rural economies to rise.

Upward Revision of Growth Forecast

• The ADB revised its forecast recently following the IMF, the World Bank, Moody’s, and other major financial institutions’ updates. This indicates concerns on the part of these institutions on the strength of the Indian economy, which needs to be urgently addressed.
• Nonetheless, the 7% growth rate (for 2023) is relatively at par with the anticipated 7.6% growth (2022-23 fiscal year) which implies a gradual slowdown but the economy is still enjoying economic performance.

Drivers of Growth

• As per the ADB, public and private sector investment demand and the corresponding improvement in consumer demand are considered as the primary economic growth stimulators for the Indian economy.
• The nation’s GDP will be boosted from the continued inclusion of manufacturing and service sectors after it secures a normal rice crop season, the softening of the inflationary pressures, and the sustained capital investment.

Monetary and Fiscal Policies

• India’s monetary policy is expected to remain growth-supportive as inflation trends downward, aligning with global patterns. 
• Fiscal policy is anticipated to aim for consolidation while still providing support for capital investment. 
• This balanced approach is forecasted to maintain the growth rate at 7% in FY2024 and improve to 7.2% in FY2025.

Export Outlook

• The ADB predicts that exports from India will likely be relatively muted in the fiscal year due to a slowdown in major advanced economies. However, an improvement is expected in FY2025. 
• To boost exports in the medium term, the ADB suggests that India needs greater integration into global value chains.

Comparison with RBI Projections

• The ADB’s growth forecast aligns with the projections made by the Reserve Bank of India (RBI), which also anticipates a 7% GDP growth in the current fiscal year. 
• The RBI’s projection is based on expectations of a normal monsoon, easing inflationary pressures, and a continued push in the manufacturing and services sectors.

Global Economic Context

• The ADB’s report comes at a time when the global economy is facing multiple challenges, including the ongoing effects of the COVID-19 pandemic, supply chain disruptions, and geopolitical tensions. 
• Despite these headwinds, India’s economy is showing resilience, buoyed by domestic demand and government initiatives aimed at boosting growth.

Conclusion

The ADB’s projection of India’s GDP growth at 7% for 2024-25 reflects a positive outlook for the country’s economy, despite a slight moderation from the previous fiscal year’s growth rate. The forecast highlights the critical role of investment and consumer demand in driving economic expansion, supported by conducive monetary and fiscal policies. As India navigates the complexities of the global economic landscape, the ADB’s report provides a basis for optimism about the country’s economic resilience and potential for sustained growth.

Source: The Hindu

UPSC Mains Practice Question

Q.Analyse the potential economic implications of ADB’s forecast of a 7% GDP growth for India in 2024-25, considering the challenges and opportunities for sustainable development and inclusive growth in the country.

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