Consumption will be a major growth driver, fuelled by rising rural incomes and increased demand from urban middle-class and affluent households due to reductions in personal income tax rates, ADB said in its report titled Asian Development Outlook (ADO) April 2025.
Additionally, moderating inflation is expected to further boost consumer sentiment with rates projected at 4.3 per cent in FY25 before declining slightly to 4.0 per cent in FY26. Falling inflation would create policy space for more cuts to repo rate even with global financial uncertainty.
“India continues to show resilient growth despite global uncertainties, driven by the Government of India's focus on infrastructure development and job creation,” said Mio Oka, ADB country director for India. “The further strengthening of the manufacturing sector through regulatory reforms, combined with the already robust services and agriculture sectors and the recently announced tax incentives for the middle class, will help sustain India’s strong economic growth trajectory.”
Investment in urban infrastructure will increase, supported by a new government fund with an initial allocation of ₹100 billion (~$1.17 billion). While global economic uncertainties may hinder private investment prospects in the short term, they are expected to improve with the gradual lowering of borrowing costs and planned regulatory reforms aimed at spurring investment, added the report.
The report noted a range of near-term growth risks, including uncertainties created by the recent US tariffs and broader global developments that could lead to higher commodity prices. However, some of these risks are expected to be mitigated by India’s relatively stable macroeconomic position.
The growth forecasts were finalised prior to the April 2 announcement of new tariffs by the US administration, so the baseline projections only reflect tariffs that were in place previously, ADB clarified in a press release.
ALCHEMPro News Desk (SG)
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