Risky premise: On Asian Development Bank forecast, India’s GDP growth

Policymakers must simplify trade rules to boost exports

The Asian Development Bank (ADB) on Thursday raised its forecast for India’s GDP growth in the current fiscal year ending on March 31, 2025, to 7%, from 6.7% earlier, citing robust public and private investment as well as expectations of a gradual improvement in consumer demand as the rural economy recovers. The regional multilateral lender also projected that India’s economy would expand by 7.2% in fiscal 2025-26. The ADB’s latest growth forecast for India’s GDP is, however, still slower than the 7.6% pace that India’s National Statistical Office has estimated for the 12 months that ended on March 31. Last year’s expansion too was driven by strong investment while consumption remained muted. The ADB, however, cautioned that its forecast could be proven wrong by global risks including a sharp rise in oil prices or prolonged high interest rates in the West to tackle inflation. It estimated that India would likely be the economy most affected in Asia by the high interest rates due to the greater sensitivity of the rupee to western interest rates. It also noted that while the Centre’s capital expenditure spending had been strong and was projected to grow with rising budgetary allocation, project completions in the private sector had failed to match rising project announcements. Most conspicuously missing from the ADB’s report, however, was the absence of any comment on the controversies surrounding the integrity of India’s national income data or concerns raised about the heavy influence of government tax receipts on final GDP.

The lender also failed to make any mention of the absence of significant structural reforms in India, particularly since the COVID-19 pandemic. One of the reasons the strong growth numbers reported by the government have been questioned is that they have come at a time when economic reforms have taken a back seat. The ADB’s assumption of a likely rebound in consumer spending to support its 2024-25 growth projection is also at risk of being undermined. Global country risk research firm BMI recently flagged the risk to consumption spending from stretched household savings which are near all-time lows. In any case, the Centre would do well to listen to the ADB’s suggestion to create large-scale special economic zones with an easier policy environment to boost exports. Given the challenges flagged by the lender to global merchandise trade, including the extremely volatile situation in West Asia and the disruptions to the normal east-west shipping route through the Red Sea, India must heed the ADB’s recommendations to integrate better with global supply chains and improve its logistics infrastructure post haste.