The Asian Development Bank (ADB) has downgraded India’s GDP growth forecast for FY25 to 6.5% from 7% and for FY26 to 7% from 7.2%, citing weaker-than-expected industrial output, subdued public capital spending, and tight monetary policies.
The slowdown in Q2FY25, where GDP growth fell to 5.4% compared to 6.7% in the previous quarter, has impacted these projections. The Reserve Bank of India (RBI) also revised its growth forecast for FY25 to 6.6%. Despite challenges, the economy is supported by strong agricultural output, resilience in the services sector, and declining crude oil prices.
Key Drivers of the Revision
Industrial and Public Sector Weakness: Weaker industrial growth, muted public capital expenditure, and tighter prudential norms for unsecured loans have constrained growth.
Monetary Policy Impact: Tight monetary policies aimed at combating inflation have subdued private investment and housing demand.
Inflation Outlook
ADB retained the inflation forecast for FY25 at 4.7% and lowered FY26 to 4.3% due to expectations of declining Brent crude prices, which could ease energy inflation.
South Asia Growth Downgrade
India’s slowdown contributed to a regional GDP forecast revision for South Asia, now at 5.9% in 2024 and 6.3% in 2025.
Positive Indicators
Agriculture & Services Resilience: Growth in agriculture (3.5%) and services (7.1%) sectors provides stability.
Favorable Economic Trends: Declining crude oil prices, strong urban labor force participation, and positive PMI readings reflect underlying economic strength.
Summary of the news
| Key Points | Details |
|---|---|
| Why in News | ADB revised India’s GDP growth forecast for FY25 to 6.5% (from 7%) and FY26 to 7% (from 7.2%), citing weak industrial output and muted public spending. |
| Q2FY25 Growth | GDP growth slowed to 5.4%, a seven-quarter low, compared to 6.7% in the previous quarter. |
| Inflation Forecast | Retained at 4.7% for FY25; revised to 4.3% (from 4.5%) for FY26, aided by declining Brent crude prices. |
| Sectoral Resilience | Agriculture grew at 3.5%, services at 7.1%; strong kharif crop expected to support growth. |
| Regional Growth Impact | South Asia’s growth forecast revised to 5.9% for 2024 and 6.3% for 2025 due to India’s slowdown. |
| RBI Policy Rate | RBI retained the policy rate at 6.5% for the 11th consecutive time in its latest bi-monthly review. |
| Capital Spending Lag | Government capital expenditure is lagging behind budget targets, impacting overall growth. |
| Monetary Tightening | Tight monetary policy constrained private investment and housing demand. |
| Positive Indicators | Declining crude oil prices, strong labor force participation, and positive PMI readings for industry and services. |
S&P Global Maintains 6.8% Growth For...
Retail Inflation Eases for Farm and Rura...
India's CPI Inflation Drops to 5.5% in N...
