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ADB Predicts 7% Growth in India’s GDP Growth Forecast

2024/04/12 16:38 pm


The Asian Development Bank (ADB) on Thursday, April 11 raised India’s GDP growth forecast for the current fiscal to 7% from 6.7% earlier, saying the robust growth will be driven by public and private sector investment demand and gradual improvement in consumer demand.

The 2024-25 growth estimate is, however, lower than the 7.6% projected for the 2022-23 fiscal. Strong investment drove GDP growth in the 2022-23 fiscal as consumption was muted, the ADB said.

The ADB had in December last year projected the Indian economy to expand 6.7% in the 2024-25 fiscal.

"The economy grew robustly in fiscal 2023 with strong momentum in manufacturing and services. It will continue to grow rapidly over the forecast horizon. Growth will be driven primarily by robust investment demand and improving consumption demand. Inflation will continue its downward trend in tandem with global trends,” the April edition of the Asian Development Outlook released on Friday. Growth will be robust despite moderating in FY2024 and FY2025, it said.

For the 2025-26 fiscal, the ADB has projected India’s growth at 7.2%. The ADB said exports are likely to be relatively muted this fiscal as growth in major advanced economies slows down but will improve in FY2025.

"Monetary policy is expected to support growth as inflation abates, while fiscal policy aims for consolidation but retains support for capital investment. On balance, growth is forecast to slow to seven per cent in FY2024 but improve to 7.2% in FY2025,” it said.

To boost exports in the medium term, India needs greater integration into global value chains, the ADB added.

The ADB’s growth forecast for FY25 aligns with the projections made by the Reserve Bank of India (RBI). The RBI last week said GDP growth in the current fiscal is projected at 7% on expectations of normal monsoon, moderating inflationary pressures and sustained momentum in manufacturing and services sectors.

Fitch Positive About Economic Growth

Rating agency Fitch raised India’s GDP growth estimates for FY24 and FY25 as compared with its previous outlook, citing growing domestic demand and improved business and consumer confidence.

Terming the upward revisions “sizeable", the rating agency changed the FY24 estimate to 7.8% from 6.9% in December 2023, and the FY25 estimate to 7%, from 6.5% a quarter ago. It also lowered its expectations of future rate cuts.

"With GDP growth having exceeded 8% for three consecutive quarters, we expect an easing in growth momentum in the final quarter of the current fiscal year, implying an estimate of 7.8% for growth in FY24," Fitch said.

It noted that economic growth had continued to outperform its quarterly forecasts, with a much stronger increase in real GDP than expected in the December outlook report. The outlook was driven by domestic demand, a 10.6% investment growth on-year and a 3.5% increase in private consumption.

The revision of the forecast by Fitch follows similar revisions by other global ratings agencies including S&P and Moody’s following blockbuster GDP growth in the third quarter of FY24. India has reported 8.4% GDP growth in the October-December quarter, the fastest in 18 months, on the back of good performance by the manufacturing and construction sectors while retaining the tag of being the fastest-growing economy globally.

The agency’s projections for FY24 are above the government’s revised estimates of 7.6% but lower than Reserve Bank of India chief Shaktikanta Das’ estimate of close to 8%.

The rating agency also expects the RBI to go for a 50-bps rate cut from July to September, lowering its estimate from 75 bps in December, due to the stronger growth outlook.

“Core inflation measures are steadily declining, underlining the developments in food prices (which account for around half of India’s consumer price index) will be key to inflation developments and the pace at which inflation will approach the Reserve Bank of India’s (RBI) 4% mid-point of its 2%- 6% target band," it added.

Fitch expects the headline retail inflation number to fall to 4% by the end of December 2024, on the assumption that food prices will cool. In February, retail inflation in India remained unchanged at 5.1%, while core inflation measures continued to decline steadily.

The RBI has kept the repo rate unchanged at 6.5% for the last six consecutive meetings and has reiterated its commitment to reaching the 4% inflation target on a sustainable basis.

Article Sources – PTI, Mint

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