ADB cuts India GDP growth forecast to 6.5% for FY 2025, cites weaker industrial growth

The Asian Development Bank (ADB) has lowered India’s GDP growth forecast for the fiscal year 2024-25 (FY25) to 6.5%, down from its earlier estimate of 7%, attributing the revision to weaker-than-expected industrial output and subdued public capital expenditure.

For FY26, the ADB trimmed its projection to 7.0% from 7.2%, citing subdued private investment and housing demand, constrained by a tight monetary policy aimed at curbing inflation.

"India’s outlook is adjusted downward from 7 per cent to 6.5 per cent for this year, and from 7.2 per cent to 7 per cent next year, due to lower-than-expected growth in private investment and housing demand," ADB said in its report.

The downward revisions come amid a slowdown in growth during the second quarter of FY24, which dropped to 5.4%, compared to 8.2% in the same period last year. Industrial production grew at a modest 3.6% year-on-year, impacted by tighter prudential norms for unsecured personal loans set by the Reserve Bank of India (RBI) and persistently high food prices.

"Government capital expenditure for FY2024 also continues to lag behind the budget target, a risk highlighted in ADO September 2024," it added.

Despite these challenges, the agriculture and services sectors displayed resilience, recording growth rates of 3.5% and 7.1%, respectively. A strong summer (kharif) crop is expected to ease food price pressures, while robust performance in services continues to support the economy.

The ADB also pointed to positive signs such as declining Brent crude oil prices and favourable labour market conditions, including strong urban labour force participation and Purchasing Managers' Index (PMI) readings for both industry and services.

India’s inflation forecast for FY24 has been retained, while the projection for FY25 has been revised down to 4.3% from 4.6%.

The ADB’s outlook for South Asia’s growth has also been revised downward, with the region expected to grow at 5.9% in 2024 and 6.3% in 2025. India’s slowdown in Q2 of FY24, driven by lagging government expenditure and muted manufacturing performance, was identified as a key factor in the regional downgrade.