The Asian Development Bank (ADB) anticipates continued high growth in India's economy, with a 7% increase in Gross Domestic Product (GDP) for fiscal year 2024 (ending March 31, 2025) and 7.2 percent for fiscal year 2025. The forecasts are detailed in the bank's Asian Development Outlook report for September 2024.

Mio Oka, ADB Country Director for India, stated, "India's economy has demonstrated extraordinary resilience in the face of global geopolitical problems and is positioned for continued growth. Agricultural improvements will boost rural spending, complementing the effects of strong development in the industry and services sectors."

According to the paper, above-average monsoon conditions over much of India are likely to boost high agricultural growth and benefit the rural sector in FY2024. The ADB expects the industrial and services sectors, as well as private investments and urban consumption, to grow in FY2024 and FY2025. Furthermore, the bank stated that a new government effort offering employment-linked incentives to individuals and businesses might improve labor demand and facilitate job growth beginning in FY2025.

Debt Reduction Amid Inflationary Fears

The government's fiscal consolidation initiatives are expected to reduce central government debt from 58.2 percent of GDP in FY2023 to 56.8 percent in FY2024. "The general government deficit, which includes state governments, is expected to fall below 8 percent of GDP in FY2024," said the report's author.

Consumer inflation is forecast to climb to 4.7% in FY2024, driven by high food costs, despite an estimated increase in agricultural output. This circumstance has constrained the central bank's capacity to pursue a more liberal monetary policy. However, if increases in agricultural supplies result in reduced food costs, the central bank may consider cutting policy rates in FY2024, thereby promoting credit expansion.

Current account Deficit Predictions Improve

"India's current account deficit is forecast to be 1 percent of GDP in FY2024 and 1.2 percent in FY2025, down from the previous forecast of 1.7 per cent for both years, due to better exports, lower imports, and strong remittance inflows," according to the analysis.

Potential near-term growth risks include geopolitical conflicts, which might disrupt global supply chains and affect commodity prices, as well as weather-related obstacles to agricultural productivity. The analysis assumes that the central government would satisfy its capital expenditure targets in FY2024.

Increased foreign direct investment could help to offset these risks, boosting development and investment, notably in the industrial sector. "Additionally, improvements in the supply of agricultural products may reduce food prices, potentially lowering consumer inflation below the forecast," wrote the report's authors.