Image for representational purposes only. The ADB on Wednesday (September 25, 2024) said that the economy is expected to accelerate in the coming quarters on improved farm output.
| Photo Credit: NAGARA GOPAL

The Asian Development Bank (ADB) on Wednesday (September 25, 2024) retained India’s growth forecast for the current fiscal at 7% and said that the economy is expected to accelerate in the coming quarters on improved farm output, and higher Government spending.

In its Asian Development Outlook (ADO) update of September, the ADB said exports in the current fiscal will be higher than earlier projected, led by larger services exports. However, merchandise export growth will be relatively muted through the next fiscal.

“GDP growth is expected at 7% in fiscal year 2024 (FY2024, ending 31 March 2025) and 7.2% in FY2025, both as forecast in ADO April 2024,” the ADB said, adding that India’s growth prospects remain robust.

The Indian economy grew 8.2% in the last fiscal (2023-24). The RBI projects growth to be 7.2% in the current fiscal.

It said while GDP growth slowed to 6.7% in the first quarter (April-June) of FY2024, it is expected to accelerate in the coming quarters with improvement in agriculture and a largely robust outlook for industry and services.

Private consumption is expected to improve, driven by rural consumption fuelled by stronger agriculture and by already robust urban consumption.

The outlook for private investment is upbeat, but growth in public capital expenditure, heretofore high, will moderate in FY2025.

Efforts toward fiscal consolidation are expected to drive down the fiscal deficit to a level last seen before COVID-19, reflecting robust revenue collection and restrained current expenditure, the ADB said.

A recent policy announcement offering workers and firms employment-linked incentives could boost labour demand and bolster job creation starting in FY2025, it added.

The Budget 2024-25 has announced three employment-linked incentive schemes and said the government would allocate Rs 2 lakh crore to implement them.

“Growth slowed year-on-year (yoy) in the first quarter (Q1) of FY2024 but is expected to rise in the coming months on improved agricultural performance and higher government spending.

Industry and services are expected to continue performing robustly,” the ADB said.

The current account deficit will remain moderate, helped by strong service exports and remittances.

Elevated food prices will likely mean higher inflation in the current fiscal than previously forecast, but inflation should moderate in the next fiscal.

 The Bank expects growth to be propelled by “robust domestic consumption as consumer confidence improves, and by investment including large increases” in government capital expenditure. File.
| Photo Credit: REUTERS

The Asian Development Bank (ADB) on September 20 pared its growth forecast for India’s economy to 6.3% for this year, from 6.4% estimated earlier, citing the impact of falling exports and erratic rainfall patterns that could hit farm output. 

The Bank’s economists also raised their inflation forecast for the year to 5.5% from 5% estimated in April and retained their real GDP growth projection for 2024-25 at 6.7%, influenced by expectations that private investment and industrial output will rise. 

Noting that the economy displayed robust growth of 7.8% in the first quarter of this fiscal year despite global uncertainties, the Bank expects growth to be propelled by “robust domestic consumption as consumer confidence improves, and by investment including large increases” in government capital expenditure through the rest of this year and next year. 

“However, as slowing exports could foment headwinds for the economy, and erratic rainfall patterns are likely to undermine agricultural output, the growth forecast for this year is revised down marginally to 6.3%,” noted the Bank’s Asian Development Outlook update.    

“Monsoon rainfall under the influence of a developing El Niño has led to erratic weather patterns, including flooding in certain regions and deficient rains, particularly in August. The erratic rainfall patterns have resulted in damage to the rice crop in particular and lower sowing for pulses in the kharif season,” the update pointed out, adding that it has slashed its farm sector growth hopes for the year by almost one percentage point.   

The ADB is upbeat on investment prospects in the economy, despite a decline in net foreign direct investment flows in the first quarter to $5 billion from $13.4 billion last year. 

Rana Hasan, the Bank’s regional economic advisor for South Asia, said that investments are currently driven in a big way by the central government’s capex push, but the latest quarter’s numbers show that States have also ramped up investments by 78%. “Moreover, signs of private capex can be gauged from the 19% growth in bank credit in the first quarter with a decline in banks’ non-performing loans, and an uptick in capacity utilisation rates in several industries with a better policy environment for manufacturing,” he said.