NEW DELHI: The Asian Development Bank (ADB) on Wednesday lowered India’s growth forecast for 2024-25 to 6.5% from the earlier 7%, citing lower-than-expected second quarter growth, driven by dampened manufacturing performance and lagging govt spending.
The Manila-based multilateral agency also lowered growth projections for 2025-26 to 7% from earlier 7.2%. It said forecast for FY2025 has been reduced slightly due 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, ADB said in its Asian Development Outlook (ADO).
Latest data showed GDP growth slumped to a seven-quarter low of 5.4% in the July-Sept period, dragged down by a slowing manufacturing sector and slowdown in urban consumption. It was below the 7% forecast by RBI for second quarter. The sharp slowdown has prompted a rash of downgrades of overall GDP growth for the full year.
The ADB said industrial demand is affected by tighter prudential norms of the central bank for unsecured personal loans and continuation of elevated food prices. Govt’s capital expenditure for FY2024 also continues to lag behind budget target, a risk highlighted in previous Sept 2024 ADO.
It also said India’s growth will remain robust, with the economy supported by higher agriculture output resulting from the summer crop season (which will also put downward pressure on food prices), continued resilience of services sector, and lower-than-expected Brent crude prices in 2024 and 2025. Strong forward looking and labour market indicators (such as PMI for industry and services, urban labour force participation and RBI’s industrial outlook) suggest that economic momentum will recover in the coming quarters.