India to Grow at 7 PC in FY25; 7.2 PC in FY26

Chennai: The Asian Development Bank has retained India’s growth forecasts at 7 per cent for FY25 and 7.2 per cent for FY2026, in line with April projections, supported by broad-based expansion across sectors.

While GDP growth slowed to 6.7 per cent in the first quarter of FY2025, it is expected to accelerate in the coming quarters with improvement in agriculture and a largely robust outlook for industry and services. Exports in FY2024 will be higher than earlier projected, led by larger services exports, particularly in IT and professional services.

However, growth in merchandise exports will be relatively muted in FY2025 and FY2026, though some segments, notably electronics, may experience faster growth. Private consumption is expected to improve, driven by rural consumption fueled by stronger agriculture and by already robust urban consumption.

The outlook for private investment is upbeat, but growth in public capital expenditure will moderate in FY2026. Efforts toward fiscal consolidation are expected to drive down the fiscal deficit to a level last seen before COVID-19, reflecting robust revenue collection and restrained current expenditure. A recent policy announcement offering workers and firms employment-linked incentives could boost labor demand and bolster job creation starting in FY2026.

In India, the FY2025 inflation forecast is revised up slightly to accommodate higher food prices, while the forecast for FY2026 is maintained in the expectation that core inflation will rise as food inflation moderates. Inflation is projected to be 4.7 per cent in FY2025 against the previous forecast of 4.6. But inflation should moderate in FY2026 to the earlier forecast of 4.5 per cent.

The current account deficit will remain moderate, helped by strong service exports and remittances. The deficit is projected to equal 1 per cent of GDP in FY2025 and 1.2 per cent in FY2026, down from previous forecasts of 1.7 per cent for both years.