ADB retains India’s growth forecast at 7%, projects 7.2% growth in FY26 amid resilience and inflationary pressures

The Asian Development Bank (ADB) has maintained India’s growth forecast at 7% for the current fiscal year, with expectations of an accelerated growth rate of 7.2% in FY26, according to the report released on September 25. This projection aligns with the Reserve Bank of India’s (RBI) forecast, signaling strong economic resilience despite global geopolitical challenges.

Key highlights of India’s economic growth projections:

Steady economic growth: ADB’s forecast of 7% growth for FY24 underscores India’s economic stability, driven by favorable domestic factors and a robust recovery from previous global challenges.

Accelerated growth in FY26: ADB projects a growth rate of 7.2% for FY26, further highlighting the country’s economic potential. This positive outlook is fueled by continued investments and strong domestic demand, alongside government efforts to boost infrastructure and capital expenditure.

Impact of monsoon on agriculture: ADB emphasized the positive effect of an above-average monsoon in most regions of the country, which is expected to drive strong agricultural growth and contribute to the rural economy’s expansion in FY25.

Inflation and Monetary policy outlook:

Inflation forecast for FY24: ADB has revised its inflation forecast to 4.7% for FY24, up from its April projection of 4.6%, primarily due to rising food prices. Despite increased agricultural output expectations, food inflation remains a concern, preventing the RBI from implementing more accommodative monetary policies.

Future inflation trends: Inflation is expected to moderate in the coming years, with a projected decrease to 4.5% by FY26. ADB notes that while monetary policy may become less restrictive, it will not ease as quickly as previously anticipated due to persistent inflationary pressures.

External sector and risks:

Current account deficit: India’s current account deficit is projected to widen, reaching 1% of GDP by FY25 and further expanding to 1.2% in FY26. Geopolitical shocks and supply chain disruptions may exacerbate this deficit, alongside potential commodity price fluctuations.

Downside risks: ADB highlighted several downside risks for FY24, including geopolitical shocks that could affect global supply chains and commodity prices. Weather-related shocks could also pose risks to agricultural output. Additionally, failure to meet government capital expenditure targets may negatively impact growth.

India’s economy is on a solid growth trajectory, with ADB retaining its 7% forecast for FY24 and projecting faster growth of 7.2% by FY26. However, rising inflation and external risks, including geopolitical shocks and agricultural challenges, remain key concerns. Despite these headwinds, India’s steady economic resilience positions it well for continued growth in the coming years.