India’s economic performance remains robust, but weak demand in advanced economies could impact export growth, while disruptions to oil supplies could raise energy costs and inflation, according to the Asian Development Bank’s (ADB) Country Director for India, Mio Oka. Oka emphasized that climate factors will also be crucial, as the ongoing heatwave and the progress of the monsoon season will significantly impact agriculture and the rural economy. Despite global inflation easing, it remains above target in many economies. India’s inflation has decreased due to tighter monetary policy, but food prices, which play a large role in India’s consumer inflation, remain elevated. Oka highlighted the potential for favorable monsoon and kharif seasons to lower food prices, bringing consumer inflation closer to the 4% target and potentially allowing for monetary policy easing. The recently concluded financial year, FY24, witnessed geopolitical conflicts and tepid growth in advanced economies. While sluggish growth and lower demand impacted exports, geopolitical tensions have led to volatility in energy prices. However, amid a global slowdown, India remains the fastest-growing among major economies. According to government estimates, India will clock 7.6% GDP growth in FY24 after the economy registered a surprise growth of 8.4% during the December quarter, belying fears of tempering as manufacturing, electricity, and construction put up a robust show. India’s consumer price index (CPI)-based retail inflation has been easing since December 2023. During April, retail inflation eased to 4.83% in April, down from 4.85% in March, mainly due to falling fuel prices. Oka attributed this growth to strong investment expenditure, bolstered by government capital expenditure and rising private investments. She also noted that the services sector, especially real estate, financial, and business services, is expected to maintain strong momentum. The ADB, a multilateral development bank focused on the Asia and Pacific regions, expects Indian GDP to grow 7% in 2024-25. Oka commended the Indian government’s efforts in successfully navigating the economic turbulence, leaving India’s macroeconomic parameters robust. She emphasized that this solid foundation allows the new government to focus on maintaining macroeconomic stability and fiscal consolidation. Oka outlined several priorities for the new government, including capital expenditure, digitization of the economy, and a business-friendly regulatory environment. She also stressed the importance of reducing carbon intensity and enhancing adaptability to climate goals. Policy priorities, according to Oka, should include land and labor market reforms, better urban planning and governance, and increased investments in education and health. To achieve middle-income status, as seen in many East and Southeast Asian economies, Oka emphasized the need for increased productivity and structural transformation of the economy. She pointed to the goal of transitioning workers from low-productivity sectors like agriculture to formal industries and services while boosting agriculture productivity. The government has been aiming to propel India to a $30 trillion-dollar economy by 2047. Meanwhile, the ADB has made commitments worth $2.6 billion in 2023 to fund the government’s priority agendas like job-creation, infrastructure-building, green growth, and economic inclusiveness. It also committed over $1.2 billion in private sector lending and co-lender mobilization for India. Oka highlighted the focus on climate change and poverty reduction, with several exciting projects in the pipeline for 2024 and 2025 focusing on clean energy, e-transport, affordable housing, and MSME financing. In line with the recommendations of the G20 Independent Capital Adequacy Framework Panel, Oka mentioned the ADB’s Capital Adequacy Framework review, which could enable its lending capacity by up to $100 billion over 10 years. She also highlighted the launch of the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP) to augment climate finance.
India’s Economic Outlook: Robust Growth Amidst Global Headwinds and Climate Factors
