ADB Lowers India's Growth Projection

The Asian Development Bank (ADB) has revised its GDP growth forecast for India, reducing it to 6.5% from the previously anticipated 7% for the fiscal year 2024-25. This adjustment comes in light of slower-than-expected growth during the second quarter, influenced by a subdued manufacturing sector and lagging government spending.

Additionally, the Manila-based multilateral agency has trimmed its growth projections for 2025-26 to 7% from the earlier 7.2%, citing lower private investment and housing demand due to tight monetary policies aimed at curbing inflation. The ADB's Asian Development Outlook (ADO) report also notes potential risks from geopolitical disruptions to supply chains and adverse weather conditions.

Recent data indicates a significant slowdown, with GDP growth hitting a seven-quarter low of 5.4% in the July-September period, below the Reserve Bank of India's (RBI) forecast of 7%. This has led to multiple downgrades of overall GDP growth estimates for the fiscal year.

The ADB highlights that industrial demand is being affected by stricter central bank norms for unsecured personal loans and sustained elevated food prices. Furthermore, the government's capital expenditure for FY2024 remains below budget targets, a concern previously flagged in the September 2024 ADO report.

Despite these challenges, the ADB anticipates robust growth for India, supported by higher agricultural output, resilience in the services sector, and lower-than-expected Brent crude prices for 2024 and 2025. Positive indicators such as PMI for industry and services, urban labor force participation, and RBI's industrial outlook suggest a recovery in economic momentum in the coming quarters.