ADB drops India growth forecast to 7.2% for FY23, predicts higher inflation

New Delhi: The Asian Development Bank (ADB) on Thursday lowered its prior projection of India’s FY23 growth to 7.2% from 7.5%, citing higher-than-expected inflation since April and subsequent central bank monetary tightening as reasons.

The multilateral development bank with headquarters in Manila has increased its inflation prediction for India from 5.8 to 6.7% for FY23.

“Although consumer confidence continues to improve, higher-than-expected inflation will erode consumer purchasing power. Some of the impact of this may be offset by a cut in excise duties, the provision of fertilizer and gas subsidies, and the extension of a free-food distribution program,” ADB said in its latest Asian Development Outlook supplement.

In the March quarter of FY22, India’s GDP growth slowed to 4.1% due to “disappointing” increase in private consumption and a decline in manufacturing.

According to ADB, while the Reserve Bank of India (RBI) keeps raising policy rates to control inflation, private investment will wane as a result of the increased cost of borrowing for businesses.

“Net exports will shrink due to subdued global demand and a rising real effective exchange rate eroding export competitiveness despite a depreciating rupee,” it added.

About the supply side, ADB said higher commodity prices will boost the mining industry. “But manufacturing firms will bear the brunt of higher input costs due to rising oil prices. The services sector, hit hard by COVID-19 since 2020, will do well in FY23 and beyond as the economy opens up and travel resumes. Even so, growth in Fy24 is revised down to 7.8 per cent (from 8 per cent estimated earlier),” it said.

Industry organisation FICCI, in its most recent Economic Outlook Survey, which was independently issued on Thursday, lowered the median GDP growth projection from 7.4% to 7%, with a range of 6.5 to 7.3 percent, blaming geopolitical unpredictability and its effects on the Indian economy.

“Indian economy is not immune to global volatility, as is evident from the deepening inflationary pressures and increasing uncertainty in financial markets. The participants pointed out that these factors are exerting pressure on India’s economic prospects and are likely to delay the recovery,” it said.

According to FICCI, main threats to India’s economic recovery include escalating commodity costs, supply-side disruptions, and dim prospects for global development as the European war drags on. “A slowdown in the Chinese economy is also expected to have an impact on India’s growth. Increased input cost is impairing discretionary spending as these get passed on to the final consumer through higher selling prices,” it added.

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