ADB cuts India’s FY23 GDP forecast to 7.2%.

ADB cuts India's GDP forecast for FY23 to 7.2 % due to Covid and war-related effects, as well as inflationary pressures.

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The Asian Development Bank (ADB) cut India’s economic growth forecast for the current fiscal year to 7.2% from 7.5%, citing pandemic and war-related effects, as well as inflationary pressures. However, India will continue to outperform China, which is expected to grow by 4% in 2022, up from 5% previously. China is expected to grow by 4.8% in 2023 as well.

The Manila-based multilateral funding agency forecasted 7.5% growth in the Indian economy in April. China grew by 8.1% in 2021, compared to India’s 8.7% economic growth in fiscal 2021-22. ADB also reduced India’s economic growth estimate for the fiscal year ending March 2022 to 8.7 percent from 8.9 percent previously.

“India has been impacted by the omicron COVID-19 variant as well as the economic impact of the Ukrainian war.” As a result, GDP growth for FY2021 is revised downward from 8.9% to 8.7%, and from 7.5% to 7.25% for FY2022 (fiscal to be ending in March 2023).

“Although consumer confidence continues to improve, higher-than-expected inflation will erode consumer purchasing power,” ADB said in its supplement to the Asian Development Outlook (ADO) for 2022 released on Thursday.

Some of the consequences may be mitigated by excise duty reductions, fertiliser and gas subsidies, and the extension of a free food distribution program.

Private investment will slow as the RBI continues to raise policy rates in order to keep inflation under control.

It has reduced its growth forecast for the South Asian region, which includes India, from 7% to 6.5 percent for 2022 and from 7.4% to 7.1% for 2023, owing primarily to the economic crisis in Sri Lanka and high inflation and associated monetary tightening in India.

South Asia’s economy is expected to grow at a slower rate than predicted by ADO 2022. This is primarily due to a modest downward revision to India’s forecast GDP growth due to higher-than-expected inflation and monetary tightening since April, as well as Sri Lanka’s sharp GDP contraction due to the country’s sovereign debt and balance-of-payment crises.

South Asia also includes Bangladesh, the Maldives, Nepal, and Pakistan.

It predicted that India’s net exports would fall due to weak global demand and a rising real effective exchange rate, which would erode export competitiveness despite the rupee’s depreciation.

Higher commodity prices will boost the mining industry’s supply. However, manufacturers will bear the brunt of higher input costs as a result of rising oil prices.

The services sector, which has been negatively impacted by COVID-19 since 2020, will perform well in FY2022 and beyond as the economy recovers and travel resumes.

“The economic impact of the pandemic has decreased across most of Asia, but we are still far from a full and sustainable recovery,” said Albert Park, Chief Economist at the Asian Development Bank.

In addition to the PRC’s (People’s Republic of China) slowdown, the fallout from the Ukraine war has increased inflationary pressure, prompting central banks around the world to raise interest rates, putting a brake on growth.

Park believes it is critical to address all of the global uncertainties that continue to jeopardise the region’s recovery.

In terms of India’s inflationary outlook, ADB stated that it has been revised up from 5.8 % to 6.7 % for FY2022 due to higher-than-expected oil prices. The inflation forecast for FY2023 has been raised from 5% to 5.8%.

According to ADO, a further burden on the PRC’s economy is that the housing market has not stabilised, in addition to lockdown-induced weakness in household consumption. Despite a reduction in the mortgage-rate floor for first-time buyers and a 15 basis point drop in the 5-year loan prime rate in May 2022, average new home prices in 70 major cities fell 0.8% year on year in May 2022.

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