The Asian Development Bank (ADB) has kept its GSD growth forecast for the Indian economy unchanged at 7% for the fiscal year 2025. For the fiscal year 2026, ADB projected the economy to grow at 7.2%. According to the latest report released on July 17, inflation is expected to decline to 4.6% in FY25 and 4.5% in FY26.

ADB noted that after muted growth in FY24, a rebound in agriculture is expected due to above-normal monsoon projections despite the slower advance of the monsoon in June. The bank also pointed out that investment demand continues to be strong, buoyed by private investments.

The central government has budgeted Rs 11.1 lakh crore on capex for FY25. ADB also mentioned that the central government’s stronger-than-expected fiscal position could further boost growth.

The bank expects services growth to surpass merchandise growth again in FY25. India’s services exports rose 4.9% to USD 341 billion in FY24. On the other hand, the merchandise exports were down from the previous fiscal year.

Regarding inflation, ADB projected a decline to 4.6% in the current fiscal year and a further decline to 4.5% in FY26, closer to the central bank’s 4% target. The Reserve Bank of India’s Monetary Policy Committee will likely keep policy rates on hold for the ninth consecutive time at its August meeting.

In June, India’s inflation crossed the 5% mark, with food inflation rising to 9.4% from 8.7% in May. The announcement follows the International Monetary Fund’s upgrade of India’s FY25 growth forecast to 7% from 6.8% projected in April. Strong growth in FY24 and expectations of consumption recovery prompted the upgrade.

The forecasts by multilateral institutions are still lower than the RBI’s projection of 7.2%, which increased from 7% in June. The Indian economy is expected to grow by over 7% for four consecutive years, with 8.2% growth in the previous fiscal year. The forecast for Asia received an upgrade to 5% from 4.9% projected in April.

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