The Asian Development Bank (ADB) has revised its GDP growth forecast for India for FY25 downward to 6.5%, from its earlier estimate of 6.7%. For FY26, ADB has lowered its forecast of 7.2% growth to 7%, due to slower growth in housing demand and private investment. The revised projection reflects a slowdown in economic activity observed in the second quarter of FY24 and a challenging external environment affecting key sectors.
Key reasons for the downgrade
The primary reason behind the lowered FY25 forecast is the slowdown in economic activity in Q2 FY25. This deceleration was attributed to weaker private consumption, declining export growth due to global headwinds, and tighter monetary conditions.
ADB also cited high interest rates as a factor affecting domestic demand. Despite strong services growth, a dip in manufacturing and exports contributed to the slower pace. The global economic environment remains uncertain, with subdued demand from major trading partners such as the US and Europe further weighing on India’s growth prospects.
ADB’s revised forecast underscores the need for caution as India navigates these headwinds. The reduction in expected GDP growth may influence government fiscal planning and private sector investment strategies. Policymakers will likely focus on addressing structural challenges, boosting exports, and stimulating domestic demand to sustain growth.
For investors focused on share market investment, the downgrade highlights potential risks in sectors exposed to global trade and interest rate fluctuations, such as manufacturing and exports. However, India’s strong services sector, coupled with robust public investment in infrastructure, provides some cushion against these challenges.
ADB’s outlook for FY26
Despite the FY25 downgrade, ADB remains optimistic about India’s overall growth trajectory for FY26, maintaining its 7% projection. The bank praised India’s ongoing reforms, resilience in the services sector, and steady public investments, which continue to drive economic momentum.
ADB’s chief economist highlighted India’s potential to recover quickly, given its young workforce, expanding middle class, and digital economy initiatives. However, ensuring inclusive growth and tackling inflation remain critical to sustaining this momentum.
Conclusion
The ADB’s revised GDP growth forecast reflects the challenges facing India’s economy amid a volatile global environment. While the 6.5% projection for FY25 signals tempered expectations, the continued focus on infrastructure, services, and reforms bodes well for long-term growth. For those considering share market investment, the outlook reinforces the importance of sectoral analysis and diversification to navigate potential risks while capitalizing on India’s growth story.
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