Asian Development Bank pares India growth hopes to 7.2% for 2022-23

The Asian Development Bank (ADB) has lowered its growth forecast for India to 7.2% for 2022-23 from a 7.5% projection made in April, citing higher than anticipated inflation since April along with monetary policy tightening.

In a supplement to its Asian Development Outlook report, the Bank on July 21 also moderated its growth hopes for 2023-24 to 7.8% from 8% and raised its inflation projection for that year to 5.8%, just a tad below India’s 6% upper tolerance threshold for price rise, from 5% earlier.

For this financial year, the ADB has raised its inflation forecast from 5.8% to 6.7% on higher-than-expected oil prices and cautioned that elevated prices will erode consumers’ purchasing power even as their confidence levels continue to improve.

While some of the impact of high prices may be offset by a cut in excise duties, the provision of fertilizer and gas subsidies, and the extension of India’s free-food distribution programme, the ADB noted that private investment will soften due to the higher cost of borrowing for firms as the central bank continues to raise policy rates to contain inflation.

“Net exports will shrink due to subdued global demand and a rising real effective exchange rate eroding export competitiveness despite a depreciating rupee. On the supply side, 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 supplement stated.

The services sector, that was hit hard by the COVID-19 pandemic’s onset in 2020, will do well this year ‘and beyond as the economy opens up and travel resumes’, the Bank reckoned.

Also read: India better placed to avoid risk of stagflation: RBI officials

“India’s GDP growth moderated to 4.1% in Q4 of 2021-22 on disappointing growth in private consumption and a contraction in manufacturing. India has been hit by the Omicron COVID-19 variant and the economic impact of the war in Ukraine. Consequently, GDP growth for 2021-22 is revised down from 8.9% to 8.7% and from 7.5% to 7.2% for 2022-23,” the ADB said.

The downward revision in India’s growth outlook, along with Sri Lanka’s sharp GDP contraction due to its sovereign debt and balance-of-payment crises, were largely responsible for South Asia’s growth forecast being pared to 6.5% from 7% for this year and 7.1% next year, compared to 7.4% projected in April. “The growth prospects for the sub-region’s other economies are largely unchanged as various positives balance out global headwinds,” the ADB noted.