India’s Growth Outlook Brightens: ADB Projects 7% and OECD Raises Estimate to 6.7%

On September 25, 2024, the Asian Development Bank (ADB) announced that India’s growth is expected to pick up starting in the July-September quarter, driven by better agricultural performance and higher government spending. 

ADB has kept its GDP growth forecast for the 2024-25 financial year (FY25) at 7%. At the same time, the Organisation for Economic Co-operation and Development (OECD) has increased its growth estimate for India by 0.1%, raising it to 6.7% for FY25.

In its most recent biannual Asian Development Outlook (ADO), the Asian Development Bank (ADB) pointed out India’s strong growth potential.

Although GDP growth dropped to 6.7% year-on-year in the first quarter of 2023-24 (FY24), it is likely to pick up in the upcoming quarters due to improvements in agriculture and a generally strong outlook for industry and services. The report also mentioned that exports for FY24 will be higher than previously expected, driven mainly by increased services exports, especially in information technology and professional services.

The Indian economy increased by 8.2% in the last financial year (FY24), and the Reserve Bank of India has forecasted a growth rate of 7.2% for FY25. Mio Oka, ADB’s country director for India, praised the economy’s resilience amid global geopolitical challenges and said it is set for steady growth. ADB expects private consumption to rise, driven by increased rural spending due to better agricultural output, along with already strong urban consumption.

The outlook for private investment is positive, but public capital expenditure (capex) growth, which has been high, is expected to slow in FY25. ADB warned that the government might struggle to meet its capex target for FY25, noting that central government spending would need to increase by 39% year-on-year in the remaining nine months, which could be challenging.

The report also highlighted short-term risks to India’s growth, including potential disruptions to global supply chains from geopolitical events and the impact of weather on agricultural production. In the first half of 2024, India’s GDP grew by 7%, helped by a rise in government spending and private consumption. The OECD report emphasised that strong domestic demand in India, along with Indonesia, will continue to drive growth in the next two years.

ADB slightly adjusted its inflation forecast for India, increasing it by 0.1 percentage points to 4.7% for FY25, mainly because of higher-than-expected food prices caused by bad weather. The inflation forecast for 2025-26 stays at 4.5%.

The report also noted that India’s balance-of-payments position will stay strong, especially if foreign direct investment (FDI) continues to recover and foreign portfolio investments remain high.

The report stated that growth might slow down more than anticipated if labour markets weaken, and any unexpected changes in the expected decrease in inflation could cause disruptions in financial markets. On the positive side, an increase in real incomes could significantly boost consumer confidence and spending, and if oil prices continue to fall, it would speed up the decrease in inflation.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.