The economic slowdown bottomed out last year. A spell of global financial turbulence caused capital outflows and pressure on the exchange rate, but strong policy measures stabilized the currency, rebuilt reserves, and narrowed the excessive current account deficit. Weaknesses remain, however, and include persistent inflation, fiscal imbalances, bottlenecks to investment, and inefficiencies that require structural reforms. Without a systemic resolution to these, growth is forecast to pick up modestly.

Economic performance

The government’s initial estimates peg the growth in gross domestic product (GDP) at 4.9% in Fiscal Year 2013 (ended 31 March 2014), slightly higher than the Asian Development Outlook (ADO) Update 2013 forecast of 4.7%. The estimate could be a tad optimistic, as achieving it would require growth to be boosted to 5.5% in the fourth quarter of FY2013. The marginal pickup in headline GDP growth masks underlying weakness in the economy as it was due to stronger agriculture. Excluding agriculture, GDP growth slipped from 5.0% in FY2012 to 4.9% in FY2013.

The recovery of the monsoon in the season’s second half in 2012 and a good monsoon in 2013 helped agriculture to grow by 4.6% in FY2013, though growth moderated somewhat in the second half of the year. Food grain production is estimated to have increased by 2.4% in FY2013, reaching a record of 263.2 million tons.

After growing by a tepid 1.0% in FY2012, industry decelerated further to 0.7% in FY2013. While mining has been in the red for nearly 2 years because policy bottlenecks plaguing coal and natural gas have seen little resolution, the contraction in manufacturing output was a new low. Continuing contraction in the output of capital goods and consumer durables reflects very weak investment and consumer demand. Bottlenecks restricting fuel supplies have hampered electricity generation.

The industrial slowdown and weak recovery in advanced economies caused growth in services to drop below 7%.

Selected Economic Indicators (%) - India 2014 2015
GDP growth 5.5 6.0
Inflation 6.0 5.8
Current account balance
(share of GDP)
-2.5 -2.8

Source: Asian Development Outlook (ADO) 2014; ADB estimates.

Source: ADB. 2014. Asian Development Outlook 2014. Manila.


Economic prospects

The ADO 2014 Supplement released in July 2014 noted improving prospects in India. Parliamentary elections in April brought a single-party majority to India’s lower house for the first time since 1984, which should provide an opportunity to initiate reforms that proved difficult for coalition governments. The new government outlined a 10-point plan to revive the Indian economy, prioritizing infrastructure and investment reform, the prompt resolution of interministerial issues, efficient policy execution, and government policy stability. Although the government budget released in July lacked detail on structural reform, greater political certainty should be more conducive to investment, supporting the expectation that infrastructure investment will pick up. The ADO 2014 growth forecast in April is maintained at 5.5% for FY2014 but upgraded from 6.0% to 6.3% for FY2015 as anticipated reforms bear fruit.

Source: ADB. 2014. Asian Development Outlook 2014 Supplement. Manila.