The Asian Development Bank (ADB) recently projected India’s economic growth to moderate in the current financial year, FY24, to 6.4 per cent, down from the 6.8 per cent expansion witnessed in FY23. The slowdown is attributed to tight monetary conditions and elevated oil prices. However, ADB remains optimistic about India’s economic prospects, expecting growth to accelerate to 6.7 per cent in FY25.
ADB’s positive outlook for FY25 is based on several factors.
Table: India’s Projected Economic Indicators
Indicator | FY24 Projection | FY25 Projection |
---|---|---|
Economic Growth | 6.4% | 6.7% |
Inflation | 5.0% | 4.5% |
Current Account Deficit | 2.2% of GDP | 1.9% of GDP |
Despite the ongoing global economic slowdown, India’s economic growth rate stands stronger compared to many peer economies. ADB attributes this resilience to robust domestic consumption and reduced reliance on global demand. The government’s proactive infrastructure push through initiatives like the Gati Shakti (National Master Plan for Multimodal Connectivity) project is expected to contribute significantly to raising industrial competitiveness and driving future growth.
ADB anticipates that improving labor market conditions and increasing consumer confidence will stimulate growth in private consumption. Furthermore, the central government’s commitment to increasing capital expenditure in FY24, even with a targeted lower fiscal deficit of 5.9 per cent of GDP, is expected to boost demand.
The services sector is expected to grow strongly in FY24 and FY25, benefiting from the recovery in tourism and other contact services as the impact of the COVID-19 pandemic wanes.
ADB predicts that inflation will likely moderate to 5 per cent in FY24, assuming a decline in oil and food prices. It is projected to further slow to 4.5 per cent in FY25 as inflationary pressures subside. Monetary policy is expected to be tighter in FY24 due to persistent core inflation, but it is likely to become more accommodative in FY25.
The current account deficit is expected to decline to 2.2 per cent of GDP in FY24 and 1.9 per cent in FY25. While goods exports growth is forecast to moderate in FY24, it is expected to improve in 2024, supported by production-linked incentive schemes and efforts to improve the business environment.
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