The Asian Development Bank said on Tuesday that India’s economic growth in the current fiscal year is expected to moderate to 6.4 percent amid tight monetary conditions and elevated oil prices, compared with an expansion of 6.8 percent for the fiscal year ending March 2023.
However, ADB expects the country’s economic growth to accelerate to 6.7 percent in FY25, driven by private consumption and private investment based on government policies to improve transportation infrastructure, logistics and the business ecosystem. The forecasts are part of the latest edition of the ADB’s leading business publication, Asian Development Outlook (ADO) April 2023.
The moderation in growth for India in FY24 stems from an ongoing global economic slowdown, tight monetary conditions and elevated oil prices, the report said. However, in FY25, investment is expected to grow faster thanks to supportive government policies and solid macroeconomic fundamentals, less bad loans at banks and significant corporate deleveraging that will improve bank lending, it said.
Takeo Konishi, ADB country director for India, said that despite the global slowdown, India’s economic growth rate is stronger than many peer economies, reflecting relatively resilient domestic consumption and less reliance on global demand. “The Government of India’s strong infrastructure push under the Prime Minister’s Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, logistics development and industrial corridor development will greatly contribute to increasing industrial competitiveness and boosting future growth,” he said.
Improving labor market conditions and consumer confidence will boost private consumption growth, ADB said, adding that the central government’s pledge to boost capital spending significantly in FY24 despite the target of a lower fiscal deficit of 5.9 percent of GDP is stimulating demand will also boost. Supported by the recovery in tourism and other contact services, the service sector will grow strongly in FY24 and FY25 as the impact of COVID-19 eases, it said.
However, ADB noted that output growth in FY24 is expected to be dampened by weak global demand but is likely to improve in FY25. Recent announcements to increase agricultural productivity such as the launch of digital services for crop planning and support for agricultural start-ups will be important for sustaining agricultural growth in the medium term.
“Inflation is likely to moderate to 5 percent in 2023-24 provided oil and food prices fall, and will slow further to 4.5 percent in 2024-25 if inflationary pressures ease,” it said. At the same time, ADB said monetary policy is expected to be tighter in FY24 as core inflation holds, while becoming more accommodative in FY25. The current account deficit is expected to narrow to 2.2 percent of GDP in FY24 and 1.9 percent in FY25.
Merchandise export growth is expected to moderate in FY24 before improving in 2024 amid manufacturing-related incentive schemes and efforts to improve the business environment such as tightened labor regulations, improved performance in electronics and other areas of manufacturing growth.
Services export growth has been robust and should further strengthen India’s overall balance of payments position. However, geopolitical tensions and weather-related shocks are key risks to India’s economic outlook, it said.