The Asian Development Bank (ADB) has pared its 2022-23 growth projection for India’s economy to 7% from 7.5% estimated in April, terming it a “modest downward revision” driven by higher-than-anticipated inflation and monetary tightening.
The Bank also raised its inflation forecast for India to 6.7% for this year, while widening its current account deficit (CAD) estimate to 3.8% of GDP. The CAD is expected to drop to 2.1% of GDP in 2023-24 while inflation will moderate to 5.8% as demand pressures from strengthening economic activity are tamped down by easing supply bottlenecks, the Bank reckoned.
The first quarter growth of 13.5% reflected strong growth in services for India, but GDP growth forecasts were being revised downward as price pressures are expected to adversely impact domestic consumption, and sluggish global demand and elevated oil prices will likely be a drag on net exports, the Bank said. In 2023-24, the ADB expects India to grow 7.2%.
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India’s inflation, ADB said, has turned out to be more persistent than expected, and led to a sharp tightening in monetary policy, while eroding consumers’ purchasing power. “Sticky core inflation will adversely impact spending over the next two years if wages fail to adjust,” it warned.
“Subsidised fertiliser and gas, the free food distribution programme, and the excise duty cuts will help offset some of the effects of high inflation on consumers, but the tax on packaged food products will likely be a burden on consumers already dealing with rising inflation,” the ADB update noted.
China concerns
China’s economy will record lesser growth than the rest of developing Asia for the first time in three decades, the Bank said in an update to its Asia Development Outlook (ADO) on Wednesday, at 3.3% in 2022, from 5% forecast earlier, marred by lockdowns triggered by its zero-Covid strategy, property sector problems and weaker external demand.
For 2023, the Bank forecast growth of 4.5% for China compared to 4.8% previously projected, due to ‘deteriorating external demand continuing to dampen investment in manufacturing’.
South Asia
The lower growth hopes for India along with a sharp contraction in Sri Lanka, ADB said, translate into slower growth for South Asia at 6.5% in 2022, from 7% projected earlier and 6.5% growth in calendar year 2023, compared to its previous estimate of 7.4%. India accounts for 80% of the region’s economy.
While growth will be lower, ADB expects inflation in South Asia to be pushed up by higher energy and food costs to 8.1% in 2022 and 7.4% in 2023. It had earlier estimated inflation to be 6.5% in 2022 and 5.5% in 2023, and said the upward revisions mainly reflect surging global commodity prices accelerating inflation in India, Pakistan, and Sri Lanka.
“The revision mainly reflects the pattern of inflation in India. Headline inflation there breached the monetary policy target of 2%–6% in the first quarter of 2022-23 on food price increases and pressures from rising global oil and commodity prices following the Russian invasion of Ukraine,” the Bank said.
