ADB retains India’s GDP growth forecast at 7% for FY24

The Asian Development Bank (ADB) has retained its gross domestic product (GDP) growth forecast for India in this fiscal year at 7% amid an above-average monsoon that is likely to boost rural spending, in addition to strong performance by the manufacturing and services sectors.

“India’s economy has shown remarkable resilience in the face of global geopolitical challenges and is poised for steady growth,” ADB country director Mio Oka said.

ADB’s Asian Development Outlook is consistent with its last forecast in April.

The lender said a new government policy offering employment-linked incentives to workers and firms could increase labor demand and support jobs creation starting this fiscal.

ADB said “fiscal consolidation efforts will bear fruits”, with central government debt projected to decrease from 58.2% of GDP in FY23 to 56.8% in FY24. The general government deficit, which includes state governments, is expected to fall below 8% of GDP in FY24, it said.

However, it warned that consumer inflation may rise to 4.7% in FY24 due to elevated food prices, despite higher agriculture output expectations and this has prevented India’s central bank from adopting a more accommodative monetary policy, it said.

If improved agricultural supply leads to moderating food price increases, the central bank may begin lowering policy rates in FY24, enhancing prospects for credit expansion. India’s current account deficit is forecast to be 1% of GDP in FY24 and 1.2% in FY25, down from the previous forecast of 1.7% for both years, due to better exports, lower imports, and strong remittance inflows.

The September outlook report indicated probability of near-term growth risks, including geopolitical shocks that could disrupt global supply chains and commodity prices, as well as weather-related risks to agricultural output. The outlook is based on the central government achieving its capital expenditure target in FY2024, it added.

These near-term growth risks may be offset by higher foreign direct investment, which could support growth and investment, particularly in manufacturing, it added. Additionally, improvements in the supply of agricultural products may reduce food prices, potentially lowering consumer inflation below the forecast, it said.

Moody’s had this week upgraded India’s GDP growth forecast for calendar year 2024 to 7.1%, up from 6.8% in its June 2024 forecast.

In its latest Asia-Pacific economic outlook, S&P Global Ratings maintained its forecast for India’s GDP growth at 6.8% for 2024-25, while retaining its forecast of 6.9% for the next fiscal year.