ADB lowers growth projections for India to 6.5% in FY25, 7% in FY26

The Asian Development Bank has lowered India’s GDP growth projections for FY25 to 6.5 per cent from 7 per cent estimated in September as well as the projection for FY26 to 7 per cent from 7.2 per cent predicted earlier owing to tighter prudential norms and lower than expected industrial growth in Q2. Inflation estimates for the current fiscal has been retained at 4.7 per cent while that of next year has been lowered to 4.3 per cent.India’s growth in Q2 slowed more than expected, due to weak industrial output as tighter prudential norms by the central bank curtailed growth in unsecured personal loans, along with muted public capital spending and elevated food prices, ADB said in its December forecast.“The lowering of the forecast for FY2024 reflects a deceleration of growth in Q2 FY2025 to 5.4 per cent from 8.2 per cent in Q2 FY2024. However, India’s growth will remain robust, with the economy supported by higher agricultural output resulting from the summer or kharif crop season, continued resilience of the services sector and lower-than-expected Brent crude prices in FY25 and FY26.Strong labour market indicators such as PMI for industry and services, urban labour force participation and Reserve Bank of India’s industrial outlook suggest that economic momentum will recover in the coming quarters.The forecast for FY2026 too has been reduced slightly owing to lower-than-expected growth in private investment and housing demand, due to tight monetary policy aimed at combating inflation. Downside risks remain from geopolitical threats to supply chains and adverse weather conditions.The growth forecasts for South Asia too have been revised downward to 5.9 per cent for the current year and 6.3 per cent for next year due to the subdued growth in India.Inflation projections for South Asia too have been revised down to 6.9 per cent in 2024, and to 5.4 per cent in 2025 due to lower inflation forecasts for Sri Lanka and Maldives this year and lower inflation for India next year.