With improvement in investment demand and rural demand, Indian economy is estimated to grow at 7 per cent in FY25, Asian Development Bank (ADB) said on Thursday. In December, it projected a growth rate of 6.7 per cent.

Growth rate for FY24 is pegged at 7.6 per cent. If projection by ADB and others come true, it will be the fourth year of 7 per cent or more growth.

In its latest edition, the multilateral agency said the growth will be robust, despite moderating in 2024-25 and 2025-26. It will be driven by public and private sector investment demand and by gradual improvement in consumer demand as the rural economy improves.

Exports are likely to be relatively muted in FY24 as growth in major advanced economies slows down but will improve in FY25. “Monetary policy is expected to remain supportive of growth as inflation abates, while fiscal policy aims for consolidation but retains support for capital investment. On balance, growth is forecast to slow to 7 per cent in FY24 and but improve to 7.2 per cent in FY25,” the agency said.

Latest number is in line with the projection made by the RBI’s Monetary Policy Committee (MPC). Earlier this month, while announcing MPC’s recommendation, RBI Governor Shaktikanta Das said the outlook for agriculture and rural activity appears bright, with good rabi wheat crop and improved prospects of kharif crops, due to expected normal south-west monsoon.

“Despite some headwinds, Indian economy is projected to grow at 7 per cent,” he said.

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Meanwhile, ADB said that investment prospects are brightened by public capital expenditure and improving private investments. The central government allocation for capital expenditure is higher by 17 per cent during current fiscal over the previous year. Capital expenditure by State governments will also remain strong, helped by central government transfers to State governments for infrastructure investment. In the private sector, investments in housing will remain strong, driven by stable interest rates and higher income growth for high-income households

A new government initiative to support urban housing for middle-income households is expected to spur housing growth. Private corporate investment is also likely to grow.

On inflation, the agency noted that food inflation has been persistent, but is expected to moderate to 5.7 per cent in current fiscal. According to a RBI survey, households’ inflation expectations have continued to decline in line with core inflation. The latter is expected to decline to 3.8 per cent from 4.4 per cent on the lagged effect of tighter monetary policy before rising to 5 per cent next fiscal because of higher demand.

“The inflation outlook will be helped by moderation in global inflation and a stable global crude oil market,” it said.

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