The Asian Development Bank (ADB) has reduced its estimates for the economic growth of India this fiscal year, FY25. It brought down the number to 6.5% from the previous number of 7%. It did so after India reported its GDP during the second quarter of the fiscal to stand at 5.4%, while in the last quarter, it had been 6.7%. The ADB cited several factors for the slowdown: a contraction in industrial output, more stringent prudential norms by the Reserve Bank of India on unsecured personal loans, subdued public capital spending, and food inflation. 

The ADB has downgraded the growth forecast for FY26 to 7% from 7.2%. While making such changes, the ADB report points out that the Indian economy continues to remain resilient. It happens so due to a very healthy kharif crop harvest along with continued strength of services sectors, besides an anticipated positive fallout from reduced crude oil prices in 2024 and 2025, going by the outlook. All this should keep the momentum intact during the next quarter also. 

The outlook for the South Asian region has also been weakened, with projections for 2024 and 2025 being downgraded to 5.9% and 6.3%, respectively, indicating a wider deceleration of performance in India. Nevertheless, ADB is optimistic of the country’s medium-term outlook as indicated by both labor market indicators and forward-looking indices that include the Purchasing Managers’ Index (PMI) of the industries and services that have started gaining better pace in the economy. 

The downside risks according to ADB are multifaceted, and include geopolitical tensions that may impact supply chains and adverse weather conditions affecting the agricultural output. Growth in FY26 has been downgraded mainly on account of private investment and housing demand that were weaker than envisaged and influenced by the tight monetary policy directed at curbing inflation. 

The inflation side, the ADB maintains its FY25 inflation estimate at 4.7% but lowered the inflation outlook for FY26 down to 4.3%, versus the previous estimate of 4.5%. It was mainly lowered due to expected softer energy prices, especially Brent crude. 

Of course, Axis Bank recently projected India growth at 7% for FY26, just a little bit above the ADB’s forecast. So this positive outlook is underpinned by expectations of a recovery in private sector investment, boosted by a resurgence in capital expenditure and fiscal spending, along with an easing of monetary policy.