Day 32
Economy & BudgetImportant2024-12-11
ADB Lowers India's FY25 Growth Forecast to 6.5%
In News
What Happened
On December 11, 2024, the Asian Development Bank (ADB) released its Asian Development Outlook (ADO) December 2024 update, lowering India's GDP growth forecast for FY25 to 6.5% from the previously estimated 7.0%. The revision was largely attributed to lower-than-anticipated Q2 growth caused by weak industrial output and muted public capital spending. The multilateral agency also lowered its FY26 growth projection for India to 7.0% from 7.2%.
Why It Matters
This forecast highlights the impact of tighter monetary policy, inflation, and lagging government capital expenditure on short-term economic momentum. However, despite the downgrade, India continues to be among the fastest-growing major economies globally, supported by a resilient service sector and improved agricultural output.
Background
History & Context
The Asian Development Bank routinely updates its regional economic assessments through the Asian Development Outlook publication. In its earlier September 2024 report, the ADB had projected India to grow at a robust 7.0% in FY25. However, official data later revealed that India's GDP growth slumped to a seven-quarter low of 5.4% in the July-September period (Q2), prompting a wave of full-year downgrades by various institutions, including the Reserve Bank of India.
What Changed
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ADB FY25 GDP Forecast for India: BEFORE it was projected at 7.0%, NOW it is downgraded to 6.5%.
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ADB FY26 GDP Forecast for India: BEFORE it was projected at 7.2%, NOW it is slightly reduced to 7.0%.
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RBI FY25 GDP Forecast (Context): BEFORE the RBI estimated 7.2% growth, NOW the central bank has concurrently lowered its own forecast to 6.6%.
Prelims Angle
NCERT Connection
This relates to Class 12 Macroeconomics Chapter 2 (National Income Accounting), specifically the Expenditure Method of calculating GDP (GDP = C + I + G + X - M). The ADB downgrade directly reflects a slowdown in 'I' (private investment) and 'G' (government capital expenditure), which mathematically drags down the overall GDP growth rate.
Practice Questions
Q1
Correct Statement(s)Which of the following statements is/are correct regarding the Asian Development Outlook December 2024 update? 1. The ADB lowered India's FY25 GDP growth forecast to 6.5% primarily due to lagging government capital expenditure and weak private investment. 2. The ADB projects that the inflation rate in developing Asia will rise sharply to over 5% in 2024 due to global supply chain disruptions.