Services exports growth has been robust and is expected to continue to strengthen India's overall balance of payments position
The Asian Development Bank on Tuesday said India's economic growth is expected to moderate to 6.4 per cent in the current financial year due to tight monetary conditions and elevated oil prices as compared to 6.8 per cent expansion for the financial year ended March 2023.
However, ADB expects the country's economic growth to accelerate to 6.7 per cent in FY25 driven by private consumption and private investment on the back of government policies to improve transport infrastructure, logistics, and the business ecosystem. The projections are part of the latest edition of ADB's flagship economic publication, Asian Development Outlook (ADO) April 2023.
The growth moderation for India in FY24 is premised on an ongoing global economic slowdown, tight monetary conditions, and elevated oil prices, the report said. However, FY25 is expected to see faster growth in investment, thanks to supportive government policies and sound macroeconomic fundamentals, lower non-performing loans in banks, and significant corporate deleveraging that will enhance bank lending, it said.
ADB Country Director for India Takeo Konishi said that despite the global slowdown, India's economic growth rate is stronger than many peer economies and reflects relatively robust domestic consumption and lesser dependence on global demand. "The Government of India's strong infrastructure push under Prime Minister's Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, logistics development, and industrial corridor development will contribute significantly to raising industrial competitiveness and boosting future growth," he said.
Improving labour market conditions and consumer confidence will drive growth in private consumption, ADB said, adding that the central government's commitment to significantly increase capital expenditure in FY24 despite targeting a lower fiscal deficit of 5.9 per cent of GDP will also spur demand. Helped by recovery in tourism and other contact services, the services sector will grow strongly in FY24 and FY25 as the impact of COVID-19 wanes, it said.
However, ADB noted that manufacturing growth in FY24 is expected to be tamped down by a weak global demand but it will likely improve in FY25. Recent announcements to boost agricultural productivity such as setting up digital services for crop planning and support for agriculture startups will be important in sustaining agriculture growth in the medium term.
"Inflation will likely moderate to 5 per cent in 2023-24, assuming moderation in oil and food prices, and slow further to 4.5 per cent in 2024-25 as inflationary pressures subside," it said. In tandem, ADB said that monetary policy in FY24 is expected to be tighter as core inflation persists while becoming more accommodative in FY25. The current account deficit is projected to decline to 2.2 per cent of GDP in FY24 and 1.9 per cent in FY25.
Growth in goods exports is forecast to moderate in FY24 before improving in 2024 as production-linked incentive schemes and efforts to improve the business environment such as streamlined labour regulations, improved performance in electronics and other areas of manufacturing growth.
Services exports growth has been robust and is expected to continue to strengthen India's overall balance of payments position. However, geopolitical tensions and weather-related shocks are key risks to India's economic outlook, it said.