ADB Revises India’s GDP Growth Forecast to 6.5% for FY25, 7% for FY26

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.