The Asian Development Bank in its ‘Outlook 2022 Supplement' has cut India's GDP growth forecast to 7.2% for the financial year 2022-23 from 7.5% projected in April 2022. The reasons cited for the lower GDP forecast are the economic impact of the war in Ukraine and the Omicron COVID-19 variant.
ADB says India's GDP growth moderated to 4.1% in Q4 of the fiscal year 2021 on "disappointing growth" in private consumption and a contraction in manufacturing. However, consumer confidence continues to improve, it says, adding that higher-than-expected inflation will erode consumer purchasing power.
The country’s inflation, as captured by the consumer price index (CPI), was at 7.8% in April and 7.0% in May, well above the upper bound of the RBI’s target 2%–6% inflation range. Inflation in FY2022-23 has been revised up from 5.8% to 6.7% on higher-than-expected oil prices. “The inflation projection for FY2023 is raised from 5.0% to 5.8%,” it adds.
The bank says some crucial measures taken by the government and the central bank will, however, help offset the impact to some extent. "Some of the impacts of this may be offset by a cut in excise duties, the provision of fertiliser and gas subsidies, and the extension of a free-food distribution programme. Private investment will soften due to the higher cost of borrowing for firms as the RBI continues to raise policy rates to contain inflation," says the report.
Exports and higher commodity prices could still pose issues in the short run. As per ADB, India's 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 only breather this year will be the services sector, which has been hit hard by COVID-19 since 2020. "(It) will do well in FY2022 and beyond as the economy opens up and travel resumes."
The Manila-based global financial institution has also cut India's growth forecast in FY24 to 7.8% from 8% estimated earlier.
For South Asia, too, the growth forecast has been revised down from 7.0% to 6.5% for 2022, and from 7.4% to 7.1% for 2023. It says the overall economy is expected to expand less than its earlier projection, mainly due to a "modest downward revision" to India’s forecast GDP growth due to higher-than-anticipated inflation since April and monetary tightening, and Sri Lanka’s sharp GDP contraction.
For Southeast Asia, the GDP growth forecast has been revised up, slightly to 5.0% in 2022 from its earlier projection of 4.9%. The forecast for 2023 is maintained at 5.2%, it adds.
Morgan Stanley, the U.S. investment management and financial services company, on July 18 had also cut India's GDP forecasts by 40 basis points to 7.2% for the financial year 2022-23 and by 30 bps to 6.4% for FY24 on the back of slower global growth.
Previously, several ratings agencies and financial institutions have also slashed India's growth projections due to the global downturn amid supply-chain stocks and high inflation. The World Bank last month trimmed India's GDP growth forecast for FY23 to 7.5% from 8%. Paris-based financial organisation OECD said India's real GDP will grow by 6.9% in FY23 and 6.2% in FY24, as the country’s economy loses momentum due to high inflation, and rising global energy and food prices.