ADB lowers India's FY25 growth forecast to 6.5% after slowdown in Q2

India's GDP forecast lowered by ADB

The Asian Development Bank has lowered India’s growth forecast for this fiscal to 6.5 percent from 7 percent it had projected earlier after the economy slowed down in the second quarter.

“India’s growth in Q2 slowed more than expected due to weak industrial output as tighter prudential norms by the central bank curtailed growth in unsecured personal loans, along with muted public capital spending and elevated food prices,” it said in a report released on December 11.

The ADB projected slower growth for the next fiscal as well, with forecasts lowered to 7 percent from 7.2 percent it had estimated in the September edition of Asian Development Outlook.

The Indian economy hit a seven-quarter low of 5.4 percent in Q2FY25 from 6.7 percent in the previous quarter and 8.2 percent a year back.

“The forecast for FY2025 has been reduced slightly due to lower-than-expected growth in private investment and housing demand on tight monetary policy aimed at combating inflation. Downside risks remain from geopolitical threats to supply chains and adverse weather conditions,” noted the multilateral funding agency.

The Reserve Bank of India held the policy rate at 6.5 percent for the eleventh consecutive time at its last review in December. Experts indicate that a first cut of 25 basis points may only come in the February round of monetary policy review.

The central bank too lowered the growth estimate to 6.6 percent and raised the inflation forecast to 4.8 percent.

The ADB did not change the inflation forecast at 4.7 percent, but lowered the FY26 outlook to 4.3 percent from the 4.5 percent projected earlier.

“India’s inflation forecast for FY2025 is retained as it is still in line with recent data. However, inflation in FY2025 is revised to 4.3 percent, given the expected decline in Brent crude prices leading to lower energy inflation,” it said.

While the Manila-headquartered organisation projected steady growth for the region, it did detail that Trump tariffs could upend these calculations for China.

The ADB noted that India is expected to gain 0.17 percentage points up to 2028, as tariff war intensified between the US and China.

“The associated cumulative real GDP loss up to 2028 is 1.17 percentage points for the PRC, and 0.38 percentage points for the US. In contrast, in other Asian economies, cumulative GDP rises marginally, for example, by 0.10 percentage points in the Republic of Korea, 0.17 percentage points in India, and 0.22 percentage points in Indonesia,” it said.