Asian Development Bank slashes India’s GDP growth forecast to 6.4% for FY24

The Asian Development Bank (ADB) on Tuesday revised its forecast for India’s GDP growth to 6.4% for 2023-24 from its previous estimate of 7.2% amid global headwinds. In its ‘Asian Development Outlook’ report, the bank forecasts India’s GDP to grow by 6.7% in FY25 on healthy domestic demand. For FY23, the bank has slashed India’s GDP forecast to 6.8% from the 7% estimated earlier.

"The causes are an expected global economic slowdown, tight monetary conditions, and persistently elevated oil prices. The growth rate in India is stronger than in many peer economies, reflecting relatively robust domestic consumption and lesser dependence on global demand. Growth is expected to strengthen to 6.7% in FY25 as private investment improves and growth accelerates in industry," says the Asian Development Bank.

For the South Asia region, the report says that the region’s growth will be driven by India. The bank expects South Asia’s GDP to grow by 5.5% in FY24 and 6.1% in FY25. "South Asia’s performance will be driven by India, where growth is forecast at 6.4% this year and 6.7% in FY25. India’s contribution to developing Asia’s growth is projected to have risen from 22% on average over 2015–2019 to 25% this year and 27% in 2024. This rapid growth reflects healthy domestic consumption, which will be further boosted by the tax cuts and exemptions in February’s Union Budget. Because of the more limited role of exports in the economy, India will be less affected by the slowdown in advanced economies," says ADB.

According to the report, Inflation will likely moderate to 5% in FY24, assuming moderation in oil and food prices, and slow further to 4.5% in FY25 as inflationary pressures subside. In tandem, monetary policy in FY24 is expected to be tighter as core inflation persists, while becoming more accommodative in FY25. The current account deficit is projected to decline to 2.2% of GDP in FY24 and 1.9% in FY25. 

"Growth in goods exports is forecast to moderate in FY24 before improving in FY25, as production-linked incentive schemes and efforts to improve the business environment, such as streamlined labor regulations, improve performance in electronics and other areas of manufacturing growth. Services exports growth has been robust and is expected to continue to strengthen India’s overall balance of payments position," ADB says.

 "Spurred by private consumption and investment, the economy grew strongly in fiscal 2022, albeit more slowly than a year earlier. Rising food and fuel prices pushed inflation up beyond the central bank’s target. Growth will moderate slightly this year and rise next year, buoyed again by private consumption and investment as the global economy improves. Inflation will be on a downward trend as global price pressures moderate. Improving states’ financial management is necessary to increase needed public investment," it adds.

On Tuesday, the World Bank slashed India’s GDP growth forecast to 6.3% for FY24 from 6.6% it had projected earlier citing lower consumption growth and challenging external conditions. India's GDP growth is estimated to be 6.9% for FY23.