ADB projects India’s GDP growth in 2024-25 at 7%

India's economic trajectory for the upcoming years is under the spotlight with the Asian Development Bank (ADB) projecting a growth rate of 7% for the fiscal year 2024-25. Despite a slight slowdown from the previous year's 7.6%, the ADB maintains a positive outlook on India's economic performance.

• Growth Forecast: ADB predicts India's GDP growth to reach 7.2% in 2025-26, indicating a steady upward trend over the medium term.
• Inflation Outlook: Retail inflation is expected to ease to 4.6% in the current fiscal year, further dropping to 4.5% in 2025-26.
• Persistent Food Inflation: The report notes that India's persistent food inflation is likely to decrease to 5.7% as farm output returns to normal levels, aligning with historical trends.
• Impact of Global Factors: The resurgence of inflation in the United States and the possibility of prolonged higher interest rates could impact Asia's inflation outlook, particularly affecting India due to its sensitivity to exchange rate fluctuations and reliance on imported goods.
• Monsoon Factor: A projected normal monsoon is expected to boost rural consumption, which suffered from erratic rainfall last year. Increased demand for work under schemes like the Mahatma Gandhi National Rural Employment Guarantee Act is anticipated, signaling a potential revival in rural economies.

1: Dimension- Economic Growth Trends

• Investment in Infrastructure: The government's emphasis on infrastructure development, including projects in transportation, energy, and digital connectivity, is expected to stimulate investment and drive economic growth.
• Export Promotion Strategies: Initiatives aimed at boosting exports, such as the Production-Linked Incentive (PLI) scheme and trade facilitation measures, are likely to enhance India's competitiveness in global markets and contribute to economic expansion.
• Regional Disparities: Addressing regional disparities in economic development through targeted policies and investments will be crucial to ensure inclusive growth and equitable distribution of benefits across different states and regions.

2: Dimension- Inflation Dynamics

• Supply Chain Resilience: Enhancing supply chain resilience through reforms in logistics, warehousing, and distribution networks can help mitigate inflationary pressures arising from disruptions in commodity markets and transportation systems.
• Monetary Policy Tools: The central bank's monetary policy toolkit, including interest rate adjustments and liquidity management measures, will play a pivotal role in stabilizing inflation expectations and supporting economic recovery amidst evolving global economic conditions.
• Commodity Price Volatility: Monitoring and managing volatility in global commodity prices, particularly for essential commodities like crude oil and food grains, are essential to prevent cost-push inflation and ensure macroeconomic stability.

3: Dimension- Impact of Global Factors

• Trade Policy Reforms: Pursuing trade policy reforms, including bilateral and multilateral trade agreements, can facilitate market access for Indian exporters and attract foreign investment, thereby stimulating economic growth and job creation.
• Global Financial Market Developments: Monitoring developments in global financial markets, including capital flows, exchange rate movements, and investor sentiment, will be crucial to mitigate risks associated with external volatility and maintain financial stability.
• Climate Change and Sustainability: Integrating climate change mitigation and adaptation strategies into economic planning and development policies can enhance resilience to environmental risks and foster sustainable growth in the long run.

Mains Practice Question

1. Examine the factors projected to influence India's GDP growth and the measures to alleviate inflationary tendencies for the fiscal year 2024-25, taking into account domestic and global economic conditions."