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ADB cuts India’s FY24 growth forecast to 6.4%


New Delhi: The Asian Development Bank (ADB) on Tuesday cut its estimate for India’s FY24 economic growth from 7.2% in December to 6.4%, citing risks stemming from global and domestic factors.

However, ADB said FY25 is expected to see faster investment growth, thanks to supportive government policies and sound macroeconomic fundamentals, fewer non-performing loans at banks and significant corporate deleveraging that will improve bank lending. It estimates the growth rate at 6.7 percent in FY25.

“Despite the global slowdown, India’s economic growth has outperformed many peer economies and reflects relatively robust domestic consumption and less reliance on global demand,” said Takeo Konishi, ADB country director for India.

“The strong infrastructure of the Government of India under the Prime Minister’s Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, the development of logistics and the development of industrial corridors will significantly contribute to increasing industrial competitiveness and boosting of future growth,” he added.

The agency said improving labor market conditions and consumer confidence will boost private consumption. The central government’s commitment to significantly increase capital spending in FY24, despite aiming for a lower budget deficit of 5.9% of GDP, will also boost demand. Aided by recovery in tourism and other contact services, the services sector will grow strongly in FY24 and FY25 as the impact of the pandemic eases.

However, manufacturing growth in FY24 is expected to be held back by weak global demand, but is likely to improve in FY25.

“Recent announcements to increase agricultural productivity, such as the establishment of digital crop planning services and support for agricultural start-ups, will be important to support agricultural growth in the medium term,” it added.

According to the reports, inflation is likely to ease to 5% in FY24, assuming moderation in oil and food prices, and slow to 4.5% in FY25 if inflationary pressures ease.

At the same time, monetary policy is expected to be tighter in FY24 as core inflation continues, while becoming more accommodative in FY25. The current account deficit is expected to decline to 2.2% of GDP in FY24 and 1.9% in FY25.

“Goods export growth is expected to moderate in FY24 before improving in 2024 as production-related incentives and efforts to improve the business environment, such as streamlined labor laws, improve performance in electronics and other areas of manufacturing growth. Service export growth is robust and is expected to continue to strengthen India’s overall balance of payments position,” the report said.

“However, geopolitical tensions and weather-related shocks are the main risks to India’s economic outlook,” the agency added.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.